Price of Gold Fundamental Weekly Forecast – Rising Yields, Stronger Dollar Should Limit Gains

Gold futures settled sharply lower last week, pressured by a stronger U.S. Dollar, which dampened demand for the dollar-denominated asset. A weaker Euro also indirectly drove gold prices lower. The headlines blamed stronger-than-expected U.S. manufacturing data for underpinning the dollar, but that doesn’t make sense to me since U.S. Treasury yields dropped all week until Friday’s steep rally.

Last week, December Comex gold settled at $1934.30, down $40.50 or -2.06%.

Breaking down the week, you’ll see that nothing made sense to the gold investor which is probably why it was hard to buy. Uncertainty brings risk so the best decision was to liquidate positions and try to regroup at more favorable price levels.

According to the headlines on Tuesday, gold prices fell from a near two-week high as the dollar rebounded and better-than-expected U.S. manufacturing data improved hopes about a U.S. economic recovery. The ISM U.S. Manufacturing PMI report accelerated to its highest level in nearly two years in August.

However, that may not be the real reason why the U.S. Dollar strengthened against a basket of major currencies. If you look at the other headlines, you’ll see that investors sold the Euro on concerns that the European Central Bank was worried about its rise.

According to the Financial Times, several members of the ECB’s governing council were concerned that the Euro’s rise could weigh on European growth. That followed remarks from ECB’s chief economist Philip Lane, who said the exchange “does matter” for monetary policy, which had begun the Euro’s descent from above 1.20.

Meanwhile, U.S. Treasury yields weakened all week until Friday in response to the announcement from the Federal Reserve the week before that revealed its new average inflation target policy. A plan which will allow rates to stay low even if inflation rises a bit in the future. The dollar should’ve weakened on this news and gold should’ve strengthened, but we saw the opposite move take place.

Weekly Forecast

On Friday, U.S. Treasury yields shot higher, propelled by a drop in the August unemployment rate and ahead of a big burst of supply next week. The U.S. unemployment rate fell to 8.4% in August from 10.2% in July, the Labor Department’s closely watched employment report showed on Friday. But employment growth slowed further last month and permanent job losses increased as pandemic relief money from the government started running out.

I can’t see how gold can rally with Treasury yields rising and the U.S. Dollar strengthening so I’m leaning to the downside for the precious metal this week.

Furthermore, another sell-off in the stock market could increase the appeal of the U.S. Dollar as a safe-haven asset. This should keep the pressure on gold prices or at least limit gains. #gold##USDollarIndex#

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