Price of Gold Fundamental Daily Forecast – Investors Switch from Looking for Growth to Seeking Value
Gold futures are trading lower shortly after the New York opening on Wednesday, however, there has been a slight bounce after the market hit its lowest level since July 22 earlier in the session. The catalysts behind the current break are a jump in U.S. Treasury yields and a strong recovery in the U.S. Dollar.
On Tuesday, gold sank as much as 5.3%, putting in its worst one-day performance in seven years. The problem for the long-term bulls is the short-term outlook. Speculators and money managers are reducing their gold exposure as volatility trends higher and as they take profits out of a crowded trade.
At 13:43 GMT, December Comex gold is trading $1947.80, up $1.50 or +0.08%. This is up from a low of $1874.20.
The investors burned the most by the steep plunge were the ones who bought gold because of its so-called safe-haven appeal. They were somehow banking on tensions between the U.S. and China to provide support, but this wasn’t the case as more traditional influences like Treasury yields and the U.S. Dollar were actually driving the rally.
Essentially, lower rates and a weaker U.S. Dollar drove gold prices higher, and higher rates and a stronger U.S. Dollar took the market lower. In other words, real numbers not headlines were the main catalysts behind the rally and the sell-off.
Daily Forecast
The longer-term outlook for gold is still bullish, but it still hasn’t found a bottom yet with traders still searching for a value zone. Since the pandemic hit the U.S. in March, traders have been mentioning the odd correlations between stock prices and gold prices.
Traditionally, when stocks go up, gold goes down, because investors feel they can get more bang for their buck owning stock. And for the most part over the years, they have been right, until this unusual year when tradition has been thrown out the window.
Recently, just like stocks, gold investors were chasing growth, however, and just like stocks again, investors are selling growth and looking for value.
So while we remain long-term bullish for gold, we maintain our stance that over the short-run, gold is going to have a rocky trade until it can build a decent support base inside a value zone. And since it is an investment, its direction will continue to be driven by the direction of U.S. Treasury yields and not the “safe-haven” headlines.
In other news, gold traders showed little reaction to the better-than-expected U.S. consumer inflation numbers as their primary focus is on the massive Treasury auctions later today.
If demand for 10-year notes is weak and the Treasury has to raise the interest rate to find buyers then gold could extend its losses later today.
For a look at all of today’s economic events, check out our economic calendar.
This article was originally posted on FX Empire
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