Price of Gold Fundamental Daily Forecast – Specs Driven Out by Fear of Higher Rates
August Comex Gold futures plunged to their lowest level since May 9, stopping slightly above the last main bottom at $1217.80. The catalyst behind the break in gold was higher U.S. Treasury yields. They rose in response to a report showing data from manufacturing activity climbed to its strongest level in nearly three years.
The pressure on gold actually began last week when officials from the European Central Bank, the Bank of England and the Bank of Canada made hawkish remarks about monetary policy tightening. Since gold doesn’t pay interest, the asset tends to weaken during a rising interest rate environment.
The rise in Treasury yields and U.S. equity markets also contributed to the steep drop in gold prices.
U.S. Treasury yields rose as investors reacted to a fresh batch of economic data. The yield on the benchmark 10-year Treasury Note rose to 2.35 percent, while the yield on the 30-year Treasury Bond rose to 2.865 percent. The two-year Treasury Note yield reached its highest level since 2009, finishing at 1.414 percent.
The HIS Markit’s PMI fell to 52.0 in June, down from 52.7 in May as new order growth eased for the fifth month running. Traders didn’t seem to mind because it remained above the key 50 level.
The ISM Manufacturing Index for June came in higher than anticipated 57.8, beating expectations of 54.9. Construction Spending was forecast to have grown 0.2 percentage points in May, after falling by 1.4 percentage points in April.
U.S. equities began the new quarter with a spike to the upside. The Dow Jones Industrial Average hit a record high before closing about 130 points higher. Money continued to flow out of technology and into financial stocks.
The steep drop in gold combined with the rally in stocks suggests investors are pulling money out of safe have assets and moving it into higher-risk assets. Gold could continue to feel downside pressure if stocks continue to post new all-time highs. Gold won’t become a relevant asset unless there is a steep break in stocks and increased demand for safe-haven assets.
This article was originally posted on FX Empire