Gold Prices May Fall As Non-Interest Metals Continue Losing Out

Gold Price Fundamental Forecast: Bearish

Gold Price Outlook Talking Points:

• Gold prices came under pressure as the US Dollar and bond yields rose on the whole
• FOMC meeting minutes and Fed speak can echo this dynamic in relatively sparse week
• This leaves the door open for gold price consolidation and profit taking on slower days

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By the beginning of last week’s Friday session, gold prices had slumped to their lowest point this year so far. The anti-fiat asset, which bears no interest when holding, was undermined by rising government bond yields. This was not only in the US, but from around the developed world as well in places such as Australia, Canada, the United Kingdom. Yield curves steepened as the spread between US 10-year and 2-year yields widened.

Not surprisingly, the US Dollar rose and too at the expense of the yellow metal. Critical economic event risk was notably sparse, but an upward revision in US retail sales seemed to have fueled some greenback strength. Hawkish Fed monetary policy expectations firmed and Atlanta’s Fed President Raphael Bostic confirmed that up to 4 rate hikes this year could be correct.

All of this points to another week where the markets will probably focus on the expectations of a rise in borrowing costs and bond yields. The US economic calendar docket is similarly sparse when compared to last week apart from one notable exception, the FOMC meeting minutes from its May monetary policy announcement. If the document echoes the central bank’s upgraded view on price pressure, then gold may fall at the expense of the US Dollar.

DailyFX Economic Calendar: (Time Listed in GMT)

Aside from that, we will get more Fed speak from notable members such as Chair Jerome Powell himself on Friday. Other policy voters include Raphael Bostic once again on Monday, outgoing Vice Chairman William Dudley (who will be replaced by San Francisco Fed President John Williams) on Thursday and Chicago Fed President Charles Evans at the end of the week. The latter has argued for gradual policy adjustment until the central bank returns to a neutral rate. For more scheduled speakers next week, see the table below.

Next Week’s Fed Speak Calendar:

However, given that the docket is sparse, there may be some room for consolidation, especially if traders take profits. Gold has been in a downtrend for just about a month. Do also note that IG Client Positioning for gold shows that 82.0% of gold traders are net-long with the ratio of traders long to short at 4.55 to 1. The combination of current sentiment offers a stronger Spot Gold-bearish contrarian trading bias. With that in mind, the outlook will have to be bearish.

Gold Trading Resources:

• See our free guide to learn what are the long-term forces driving gold prices
• Just getting started? See our beginners’ guide for FX traders
• Having trouble with your strategy? Here’s the #1 mistake that traders make

--- Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter