Price of Gold Fundamental Daily Forecast – Don’t Watch the Dollar, Watch Treasury Yields
Gold finished slightly better on Wednesday despite the fact that the U.S. Dollar Index is hovering near a 10-month low. This comes as a surprise to many gold traders since they expect the dollar-denominated gold market to move in the opposite direction of the dollar. So far this week, we haven’t seen this so-called “normal” relationship.
Some investors claim that Monday’s “flash crash” is behind gold’s narrow trading range this week. They claim that investors are still shocked by the move and are unwilling to refresh their positions.
My work suggests that it is rising U.S. Treasury yields that are putting a cap on the gold market this week.
The dollar index has been dropping this week because it isn’t an equally weighted index. It is heavily weighted in Euros and British Pounds and these two currencies have been the strongest performers against the U.S. Dollar this week. These two currencies are mainly responsible for plunging the dollar index to nearly 10-month lows.
Also helping to keep a lid on gold prices is speculation that the central banks in Europe, Great Britain and Canada are preparing to scale back stimulus and perhaps raise interest rates if necessary.
This news is helping to send yields higher all over the globe and this is the reason I believe gold is stuck in a range.
A sharp rise in U.S. equity markets on Wednesday also kept a lid on gold prices.
On the bullish side of the equation, gold may be receiving some support due to geopolitical concerns.
Forecast
On Thursday, investors will get the opportunity to react to the Final GDP report for the last quarter. Investors are looking for GDP to come in at 1.2%.
Gold prices should rally if the number comes in below expectations.
Chart watchers are telling fundamental traders that the current chart pattern indicates investor indecision and impending volatility. It also suggest that investors are content with holding prices inside a key retracement zone at $1258.30 to $1248.70.
The price action may also be indicating that the gold market is balanced, or that investors are waiting for news to trigger the next major move.
We do know that we could have a powerful rally on a sustained move over $1260.00. This is because taking it out will turn the main trend to up on the daily chart. The charts also indicate that a sustained move under $1248.70 will mean the selling is getting stronger.
This article was originally posted on FX Empire