Price of Gold Fundamental Daily Forecast – Poised to Rally, but Needs Weaker Dollar

James Hyerczyk
Updated
Gold may garner some speculative buying from lower Treasury yields and falling demand for risky assets, but unless the dollar weakens substantially, or the stock market crashes, it’s going to have a struggle breaking out above previous resistance levels.

Gold futures are trading higher on Wednesday, bolstered by a plunge in U.S. Treasury yields and a drop in global stock market indexes. However, a stronger U.S. Dollar is helping to limit demand for dollar-denominated gold. The catalyst behind the price action is concern over a further escalation in the trade conflict between the United States and China.

At 10:54 GMT, August Comex gold futures are trading $1287.90, up $5.40 or +0.41%.

Despite the U.S. 10-year Treasury yield hitting its lowest level since September 2017, the dollar is still being underpinned, which is putting a cap on gold prices. The greenback is strengthening like it did last year when its uptrend pressured gold bullion since the start of retaliatory tariff impositions by the two economic powerhouses.

“Wider global interest rates differentials between the U.S. Dollar and G-6 currencies have further bolstered the U.S. Dollar strength whilst extending marked pressure on gold in lieu of its status as a non-interest bearing asset,” a Phillips Futures note said.

In other news, holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, which is a gauge of investor interest in the precious metal, fell 0.2% to 737.34 tonnes on Tuesday from Friday.

Furthermore, what gold bulls may be forgetting is that gold is an investment. Therefore, investors want to make money from holding the asset. It’s not only about protecting assets like a hedge, which is the reason for safe-haven buying. Gold doesn’t pay interest or a dividend so investors prefer to use Treasurys, the Yen and Swiss Franc for protection. Furthermore, if you own gold, it will lose value with every rise in the value of the dollar.

Daily Forecast

Gold may garner some speculative buying from lower Treasury yields and falling demand for risky assets, but unless the dollar weakens substantially, or the stock market crashes, it’s going to have a struggle breaking out above previous resistance levels.

The only report from the U.S. today is the Richmond Manufacturing Index. It is forecast to come in at 6, up from 3. A weaker number will support a Fed rate cut, which could put some pressure on the dollar, and perhaps underpin gold.

However, most major players aren’t likely to bite on this report in a big way ahead of Thursday’s major U.S. Gross Domestic Product report and next week’s U.S. Non-Farm Payrolls report.

This article was originally posted on FX Empire

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