U.S. Markets closed

Price of Gold Fundamental Daily Forecast – There’s A Lot of Air Between $1465.00 and $1412.00, The Next Downside Target

James Hyerczyk

Gold futures are trading lower on Friday as rising Treasury yields continue to offset the precious metal’s appeal as an investment. Let’s face it, gold is an investment that doesn’t pay interest or a dividend to hold. So why buy it when yields are rising? That’s what investors are saying at this time.

At 12:34 GMT, December Comex gold is trading $1457.60, down $8.80 or -0.58%.

Gold is currently in a position to post its worst weekly loss since May 2017. The selling pressure represents a major shift in investor sentiment, which could lead to a test of its August 1 low of $1412.10.

Why did we pick August 1? Because that’s the day that U.S. 10-year Treasury yields hit a 2.06 percent yield, the highest level in more than three months. It was a big day for the USD/JPY also. It hit a high of 109.317 that day before plunging to 104.463 on August 26.

Do you see the connections? The 10-year Treasury Note bottomed on August 1 along with gold and the Japanese yen. At that time, it was the fear of a recession driving the price action. Furthermore, the Fed just made the first of its three rate cuts on July 31.

Now that the Fed has announced its “mini-rate cut” cycle is over and other major central banks have signaled that their easing phases are probably over, there is no longer the fear of a recession in the market and therefore, no reason to own gold as protection.

Based on this assessment, it stands to reason that gold will continue to weaken over the short-run with its August 1 bottom at $1412.10 the primary downside target. If it reaches this level then the aforementioned markets will be in sync until another force comes along to drive the price action.

Daily Forecast

I wouldn’t say gold is bearish, but I do think it’s overpriced relative to T-Notes and the Japanese Yen. So I’m looking for further downside action.

The key story driving the price action is the easing of tensions between the U.S. and China. Barring a few snags along the way, a deal is expected to be completed although no one knows when or where the agreement will be signed.

Of course, at this time, no one is taking protection against a collapse in the trade talks, which is why the markets are moving smoothly and trending. A breakdown in talks will certainly shock the markets, but this is the only reason why gold prices could rally over the near-term. As long as the U.S. and China continue to work towards a trade deal and yields continue to rise, there is no compelling reason to buy gold. If you do feel inclined to buy gold then wait until it hits a value area between at least $1412.10 and $1396.40.

This article was originally posted on FX Empire

More From FXEMPIRE: