Price of Gold Fundamental Weekly Forecast – Trading 101: Don’t Trade the Headlines, Follow Treasury Yields

Last week, a rally in gold prices was killed and prices fell after the yield on the benchmark 10-year Treasury note hit the 1.60% level.
Gold futures edged lower last week, pressured by a steady U.S. Dollar and rapidly rising U.S. Treasury yields. The market was rangebound most of the week until Friday when a misinterpretation of the government’s jobs report drove prices into its highest level since September 22 before it dropped sharply from its high.

Last week, December Comex gold settled at $1757.40, down $1.00 or -0.06%.
The price action we saw last week looked like a similar pattern we have seen for weeks. Thin trading volume draws in the buyers then bearish news tied to the Fed brings in the sellers. We really don’t see a break in this pattern coming as long as the Fed is leaning toward tapering and an eventual rate hike.

Buyers were influenced last week by thoughts of government shutdowns, debt ceilings, a global energy crisis and high inflation. But when it was all said and done, it was a headline miss in the U.S. Non-Farm Payrolls report that drove prices sharply higher – at least for an hour – on Friday. These gains couldn’t be sustained, however, because the number probably wasn’t bearish enough to change the Fed’s minds about starting its tapering in November. Additionally, the unemployment rate fell and average hourly earnings rose.

Weekly Outlook
The highlights this week will be Wednesday’s Consumer Inflation Report, Thursday’s Producer Inflation Report and Friday’s Retail Sales Report.

Higher-than-expected readings will likely bring the Fed closer to tapering, which could weigh on gold prices. Lower-than-expected numbers will noted, but I don’t think they’re going to move gold to the upside. If the Non-Farm Payrolls numbers couldn’t support gold then I don’t think weak inflation or retail sales numbers will.

The direction of gold prices will likely be under the influence of Treasury yields. Last week, a rally in gold prices was killed and prices fell after the yield on the benchmark 10-year Treasury note hit the 1.60% level, its highest level since June 4.

Based on this reaction, we’re going to stick with our usual forecast. Traders are going to sell rallies as long as the Fed is moving toward tapering. Additionally, sharply higher yields should continue to be a bearish influence on gold prices.