Gold Fundamental Outlook: Neutral
- Gold prices[1] may continue struggling in range trade
- Rosy US data could sink USD[2], but boost bond yields
- Key risk for XAU/USD is S&P 500[3], Dow Jones[4] drop
At the end of May, I highlighted that gold prices were struggling[5] to gain further upside momentum since XAU/USD bottomed in late Match. Since then, the anti-fiat yellow metal has remained largely in directionless trade. The fundamental forces[6] driving bullion are a careful balance between the direction of the US Dollar[7] and Treasury yields. This narrative has not materially changed since.
In recent days, the haven-linked USD has been gaining lost ground as the S&P 500, Dow Jones and Nasdaq[8] Composite wandered off their uptrends after this month’s Federal Reserve rate decision. A combination of cautious commentary from Chair Jerome Powell about the economic outlook and rising cases of the coronavirus spooked markets. This also resulted in yields on longer-dated Treasuries pulling back – see chart.
In an environment where the US Dollar is rising and local bond yields are falling, gold can struggle to find direction in the near term. Down the road however, depressed borrowing costs, as central banks refrain from raising rates too soon, can work in XAU/USD’s favor. Still, the risk for the yellow metal remains a swift resurgence in volatility that boosts demand for liquidity, as with what happened during the Covid-19 outbreak.
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Gold Fundamental Drivers – Daily Chart
Gold Chart Created in TradingView[10]
*Majors-based USD index averages it against: EUR[11], JPY[12], GBP[13] and AUD[14]
