Price of Gold Fundamental Weekly Forecast – Direction Will Be Dictated by Movement in Treasury Yields

James Hyerczyk

Updated Sat, Oct 21, 2017, 11:52 PM

Gold prices tumbled last week in reaction to rising Treasury yields, a stronger U.S. Dollar and increased demand for higher-yielding assets.

December Comex Gold futures settled at $1280.50, down $24.10 or -1.85%.

Early in the week, gold was pressured by hawkish comments from Fed Chair Janet Yellen and stronger-than-expected economic data that helped underpin the U.S. Dollar, making dollar-denominated gold a less desirable asset.

Late in the week, Treasury yields rose after the U.S. Senate passed a budget proposal Thursday night that allowed Republicans to move closer to eventually passing tax reform. The measure was passed by a vote of 51 to 49. Rising Treasury yields helped make the U.S. Dollar a more attractive investment while driving down demand for dollar-denominated gold.

The strong performance in the stock market also pressured gold because it showed increased investor appetite for risky assets. Gold is considered a safe haven asset that pays neither interest nor a dividend.

Geopolitical events in Spain and North Korea had almost no effect on the price of gold last week.

Forecast

The direction of gold prices this week is expected to continue to be determined by the direction of U.S. Treasury yields, the U.S. Dollar, and demand for higher risk assets. Gold will be pressured if all three factors continue to rise.

Traders will also have the opportunity to react to a number of U.S. economic reports including Durable Goods, Weekly Unemployment Claims and Advance GDP.

The net long position of money managers in Comex gold has fallen from a peak in early September but is still at an elevated level. This represents the liquidation of long positions due to rising interest rates and the maintenance of some long positions due to concerns over North Korea.

This also tells us if the threat from North Korea is diminished, gold prices are likely to plunge sharply lower. So essentially, it is holding the market up at this time.

Other factors that could influence the direction of the market is President Trump’s appointment of the next Fed Chair. If he picks a hawkish person then gold prices should break hard since this news will be bullish for the U.S. Dollar. If he moves on a dovish selection then we could see a short-covering market in the gold market.

Additionally, on October 26, the European Central Bank meets to decide monetary policy. Its decision could trigger a volatile reaction in the market which could trigger a two-sided trade in gold.

This article was originally posted on FX Empire