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Price of Gold Fundamental Daily Forecast – Weakens on Fed Rate Hike Concerns

James Hyerczyk
Gold drops as traders continue profit-taking

Gold futures are under pressure on Thursday after reaching their highest level in nine months the previous session. Although yesterday’s Fed minutes highlighted risks to the economy, the Fed also said the U.S. economy and the labor market remained strong, prompting some to believe this meant at least one more rate hike by the central bank before the end of the year.

At 09:49 GMT, April Comex gold is trading $1335.50, down $12.60 or -0.93%.

Investors were also watching new developments over U.S.-China trade relations, which may be signaling a near end to the seven month trade dispute. Furthermore, Treasury yields are rising, which is helping to make the U.S. Dollar a more attractive asset, while driving down demand for dollar-denominated gold. Additionally, increased demand for higher risk assets is also weighing on gold’s appeal as a safe-haven asset.

Fed Minutes

In its minutes, the Fed judged that a “patient” approach to interest rate hikes would be prudent as it continued to weigh various headwinds to growth. These headwinds included “the possibilities of a sharper-than-expected slowdown in global economic growth, particularly in China and Europe, a rapid waning of fiscal policy stimulus, or a further tightening of financial market conditions.”

The minutes also showed Fed policymakers spent a lot of time discussing market conditions, particularly on the emphasis that Fed actions were having on prices of risky assets like stocks and corporate bonds. That being said, the Fed also signaled they will soon lay out a plan to stop letting go of $4 trillion in bonds and other assets, but are still debating how long their newly adopted “patient” stance on U.S. rates will last.

U.S.-China Trade Relations

The ongoing trade negotiations between the United States and China remain the “main focus” for markets and are likely to “provide the next catalyst for a strong move in sentiment,” Rakuten Securities Australia said in a morning note, following the release of the U.S. Federal minutes at 19:00 GMT.

The firm went on to say, “Hopes that the US will extend the March 1 tariff deadline are growing and any confirmation of this should provide a relief rally across stocks and risk trades with implementation probably leading to a strong sell off.” This is likely to put pressure on gold prices.

Early Thursday, Reuters is reporting the United States and China have started to outline commitments in principle on the stickiest issues in their trade dispute, marking the most significant progress yet toward ending a seven-month trade war, according to sources familiar with the negotiations.

The news is helping to support the U.S. Dollar, while putting pressure on dollar-denominated gold futures. Appetite for risky assets is also increasing. U.S. Treasury yields are rising on dampened concerns of a global economic slowdown.

Daily Forecast

Despite the so-called “dovish” Fed minutes, gold prices are falling on Thursday. The price action suggests something bearish may be going on. Something is happening in the Treasury markets. Yields are rising. This is helping to boost the U.S. Dollar.

Yields could be up for two reasons. Traders are pricing in at least one rate hike by the Fed later this year, or investors are selling safe-haven Treasury positions in anticipation of a trade deal between the U.S. and China.

Remember what the Fed minutes said?

The Fed would be prudent as it continued to weigh various headwinds to growth. These headwinds included “the possibilities of a sharper-than-expected slowdown in global economic growth, particularly in China and Europe, a rapid waning of fiscal policy stimulus, or a further tightening of financial market conditions.”

Well if the trade deal is struck then this should provide some relief to concerns over a global economic slowdown in China. The lifting of an excuse to remain “patient” could eventually give the Fed a reason to resume its rate hikes, and this is what has gold traders worried.

This article was originally posted on FX Empire

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