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Price of Gold Fundamental Daily Forecast – Pressured by Rising Treasury Yields, Demand for Risk

James Hyerczyk

A rise in global bond yields led by U.S. Treasurys and increased demand of risky assets is helping to encourage profit-taking in gold on Thursday shortly before the regular session opening in New York. Technical factors may also be contributing to the early weakness with most indicators suggesting overbought conditions following a more than $80 gain this month. Furthermore, the lack of follow-through to the upside following yesterday’s strong surge suggests buyers may be respecting the March 14, 2014 main top at $1532.40.

At 10:28 GMT, December Comex gold is trading $1508.10, down $11.50 or -0.76%.

U.S. Treasury yields were sharply higher early Thursday after plunging the previous session, following a series of central bank rate cuts, led by the Reserve Bank of New Zealand, which reduced its official cash rate by a whopping 50-basis points.

Shortly before the U.S. opening, the yield on the 10-year Treasury note was higher at around 1.729%, up 0.038%, while the yield on the 30-year Treasury bond, hovered around 2.245%, up 0.05%.

Demand for risk is higher early Thursday with U.S. stock index futures pointing toward a solid opening, helped by a rise in yields, and boosted by better-than-expected Chinese trade data that appeared to offer investors some respite from fears of a global trade war.

In other news from Wednesday, Chicago Federal Reserve President Charles Evans suggested that he would be open to lowering interest rates in order to support inflation and counter risks to economic growth. This comes one day after St. Louis Federal Reserve President James Bullard said the Fed should wait before cutting rates again to see how the latest rate cut has impacted the economic data.

Additionally, market participants are seen building bets that the U.S. central bank will cut rates three more times by year end, according to the CME FedWatch tool.

Daily Forecast

Gold should remain under pressure as long as Treasury yields continue to rise. In the absence of any major economic reports, the main driver of yields today should be the performance in the U.S. equity markets.

If stocks continue to push higher, then this should underpin rates and pressure gold. If stocks were to take another steep dive then flight-to-safety buying will drive yields lower, boosting demand for gold.

On the data front, traders will get the opportunity to react to weekly U.S. Employment Claims and Final Wholesale Inventories. Weekly claims are expected to have remained steady at 215K.

This article was originally posted on FX Empire