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Price of Gold Fundamental Daily Forecast – Lower Stocks, Treasury Yields Fueling Hedge Demand

James Hyerczyk

Gold futures are trading higher on Tuesday after iPhone maker Apple Inc.’s revenue warning underscored the financial fallout of the coronavirus epidemic in China. The news drove Apple shares sharply lower, while dragging down the technology sector. U.S. Treasury yields fell, making the U.S. Dollar a less-desirable investment, while driving up demand for dollar-denominated gold.

At 11:40 GMT, April Comex gold is trading $1590.60, up $6.40 or +0.40%.

Traders are also reacting to dovish minutes from the last Reserve Bank of Australia (RBA) policy meeting on February 4. At the meeting, policymakers discussed a rate cut and also considered the virus a “material” threat to the economies of China and Australia.

The RBA kept rates unchanged at an all-time low of 0.75% at that meeting, but the minutes showed central bankers are prepared to ease policy further if necessary.

Australian financial futures imply only an 18% probability of a quarter-point rate cut by April, rising to 52% by June. A move is not fully-priced until October.

Lower rates provide stimulus and liquidity which tend to be bullish for gold prices.

On Monday, China moved to cut its medium-term lending rate. The decision is expected to pave the way for a reduction in the country’s benchmark interest rate as policymakers sought to ease the damage from the virus outbreak that has seriously disrupted activity.

Reuters also reported that China is planning targeted tax cuts while increasing government spending, Finance Minister Liu Kun wrote Sunday in China’s Communist Party magazine Qiushi.

Daily Forecast

More stimulus from the central banks is likely to provide longer-term support for gold prices, but over the short-run, gold is likely to be underpinned the most by falling Treasury yields and lower demand for risky assets.

The drop in global equity markets in Asia and Europe is likely to keep a floor under gold prices on Tuesday. The buying could accelerate if U.S. markets continue to weaken during their trading session.

The blue chip Dow Jones Industrial Average is expected to open lower based on the early futures market trade. The market is being initially pressured by a plunge in shares of Apple. Another Dow component, Walmart, is also expected to be under some pressure after reporting earnings that fell short of Wall Street expectations.

April Comex gold will be primarily guided by the direction of U.S. Treasury yields since they have a direct impact on the value of the U.S. Dollar.

The benchmark 10-year Treasury note yield fell to 1.5457%, while the yield on the 30-year Treasury bond was also lower at around 1.9944%.

The 3-month Treasury yield remains inverted against the 1-year, 2-year, 5-year and 10-year Treasury yields. These are early indications that investors are preparing for a recession.

On the data front, Dollar/Yen investors are likely to be influenced by Empire State manufacturing figures for February and the National Association of Home Builders (NAHB) survey for February.

This article was originally posted on FX Empire