Price of Gold Fundamental Weekly Forecast – Falling Treasury Yields Will Be Bullish

Gold posted a two-sided trade last week, first breaking to its lowest level since May 17 then recovering late in the week to finish marginally lower.

August Comex Gold futures settled the week at $1256.40, down $0.10 or -0.01%.

Gold hit a four-week low early in the week as the dollar held firm and the market waited for comments from top Federal Reserve officials on U.S. monetary policy, but prices were also supported by the start of talks on the terms of Britain’s departure from the European Union.

Prices were pressured when New York Federal Reserve President William Dudley reinforced expectations that the U.S. central bank will continue on its path of tightening monetary policy.

Prices were supported on the notion that with inflation stubbornly soft despite a 16-year low in the U.S. unemployment rate, the Federal Reserve should move only slowly to raise interest rates and trim its massive bond portfolio, Chicago Fed President Charles Evans said.

Gold prices rose the latter part of the week as risk averse sentiment amid weaker oil prices drove up the demand for the metal, with a softer dollar and weakness in U.S. Treasury yields also lending support.

Forecast

The primary driver of higher gold prices at this time appears to be the flattening of the longer-dated U.S. Treasury curve. This is likely to continue this week if U.S. economic data continues to come in weaker-than-expected and if Fed officials start to deliver more dovish commentary about the chances of an additional rate hike later in the year.

This week, investors will get the opportunity to react to data on Core Durable Goods Orders, Consumer Confidence, Final GDP and Weekly Unemployment Claims.

Sandwiched between the reports will be a speech from Fed Chair Janet Yellen on Tuesday, June 27.

Pay attention to the movement in the Treasury yields. Lower yields will be bullish for gold. Rising yields will drive gold prices lower, but geopolitical concerns should prevent the market from collapsing.