Gold – Fundamental Forecast, April 20, 2017
Gold prices fell on Wednesday in response to a stronger U.S. Dollar and rising U.S. Treasury Bond yields.
June Comex Gold finished the session at $1283.40, down $11.50 or -0.89%. The market fell to its lowest level since April 12 and closed lower for the first time in five sessions.
Higher Treasury yields played a role in supporting the U.S. Dollar which made dollar-denominated gold less attractive to foreign investors. The U.S. 10-year Treasury yield rose to 2.206% from 2.173%.
Investors were caught off guard by gold’s response to a steep drop in U.S. equity markets. However, support continued to be provided by concerns over geopolitical events in North Korea and the upcoming French presidential elections.
The price action on Wednesday looked more like position-squaring rather than a shift in sentiment. The steep sell-off may have even been triggered by some light profit-taking and sell stops. I don’t think it means that investors are ready to throw in the towel on further upside action.
The situation in North Korea is starting to cycle down, but investors are still worried about France. Other European elections and now the snap-election in the U.K. are likely to help gold maintain its bullish tone throughout the year.
In economic news, investors will get the opportunity to react to the latest data from the Philadelphia Federal Reserve, weekly jobless claims and the Conference Board. Treasury Secretary Mnuchin is also scheduled to speak.
The Philly Fed Manufacturing Index is expected to come in at 25.6. Weekly Unemployment Claims are expected to come in at 241K. The Conference Board’s Leading Index is expected to rise 0.2%.
On Wednesday, Treasury Secretary Steven Mnuchin said President Donald Trump is “absolutely not” trying to talk down the strength of the U.S. Dollar. Mnuchin was responding to Trump’s comments to The Wall Street Journal last week when he said the dollar was “getting too strong”.
On Thursday, I expect the geopolitical events to provide support, but gold to remain sensitive to higher Treasury yields and firmer U.S. Dollar. Mnuchin’s speech at 1715 GMT could be a market moving event if he talks about the timing of tax reform and the value of the U.S. Dollar.
Look for Mnuchin’s speech to cause volatility in the gold market.