Gold fell to its lowest level in over 7 weeks, pressured by rising U.S. Treasury yields, a stronger U.S. Dollar and increased demand for higher-yielding assets. Rising expectations for a third Fed rate hike before the end of the year also pushed gold prices lower as well as an easing of tensions over North Korea.
December Comex Gold futures settled at $1275.80, down $9.00 or -0.70%.
The U.S. Dollar rose on Monday, boosted by higher U.S. Treasury yields and strong manufacturing data. Growing optimism over tax reform from Washington also drove up demand for the Greenback. A stronger dollar tends to be bearish for dollar-denominated gold because it often leads to decreased demand from foreigners.
U.S. Treasury yields rose on Monday amid growing optimism over tax reform from Washington and strong economic data.
In economic news, the ISM Manufacturing PMI rose in September, expanding at its fastest pace since May 2004. The report showed an increase from 58.8 in August to 60.8 in September. Analysts were looking for an increase of 57.9.
The Commerce Department said construction spending rose 0.5 percent to $1.21 trillion. July’s construction outlays were revised sharply down to show a 1.2 percent plunge instead of the previously reported 0.6 percent drop. Construction spending increased 2.5 percent on a year-on-year basis.
In other news, Dallas Fed President Robert Kaplan said the Federal Reserve will need to “look hard” at whether it should raise rates in December, but there is no need to wait for inflation to actually get to, or even begin to rise back to, the Fed’s 2-percent target before doing so.
“I need to see some evidence that I think the cyclical forces are picking up enough that eventually, it’s likely that inflation will start to build in the future, even if I can’t see it yet,” Dallas Fed President Robert Kaplan, a voting member this year on the Fed’s policy committee, told reporters in El Paso.
Forecast
December Comex Gold is rapidly approaching its last major technical support level at $1268.90. If this price fails to attract the attention of buyers then prices could acceleration to the downside.
Like any technical support levels, all they do is point out to investors where a market might turn. If this price is tested and the news continues to be bearish then buyers aren’t going to show up to stop the selling pressure. Another reason for buying at this level will be profit-taking or position-squaring ahead of Fed Chair Janet Yellen’s speech on Wednesday or Friday’s U.S. Non-Farm Payrolls report.
All the news seems to be bearish right now and investors are responding accordingly. This is why the sell-off has been orderly and without incident. The only events I can see turning gold higher at this time are problems with the tax reform plan, issues with President Trump replacing Fed Chair Janet Yellen and North Korea.