Gold futures are under pressure on Thursday as Treasury yields continue to rise, boosting the U.S. Dollar. The catalyst behind the moves is a fresh set of economic data that signaled that global interest rates would stay higher for longer than anticipated.
Higher interest rates to tame rising prices increase the opportunity cost of holding non-yielding bullion. The stronger U.S. Dollar makes bullion less affordable for buyers holding foreign currencies.
At 07:19 GMT, April Comex gold futures are trading at $1836.90, down $8.50 or -0.46%. On Wednesday, the SPDR Gold Shares ETF (GLD) settled at $170.82, up $1.04 or +0.61%.
Economic Data Supports Higher Rate Hike Expectations
Data on Wednesday showed U.S. manufacturing contracted for a fourth straight month in February. Still, there were signs that factory activity was starting to stabilize, with a measure of new orders pulling back from a more than 2-1/2-year low.
Meanwhile, data from Germany showed consumer prices rose more than anticipated in February, following Tuesday’s data showing inflation rose unexpectedly in France and Spain – pushing up European Central Bank rate hike expectations.
Traders Eyeing Fresh Economic Data from Europe and the United States
Economic data released on Thursday could produce similar results, with the Euro Zone reporting the CPI Flash Estimate and Core CPI Flash Estimate.
Traders are looking for Euro Zone CPI to come in at 8.3%, down from 8.6%. Core CPI is expected to come in at 5.3%, matching the previous month. Higher than-expected readings could be bearish for gold because they will increase the chances of further rate hikes by the ECB.
In the U.S., the focus will be on Weekly Jobless Claims, Revised Nonfarm Productivity, and Revised Unit Labor Costs.
Weekly Jobless Claims will give gold traders an outlook on the labor market. Traders are looking for a slight rise from 192K to 196K. The new number is expected to reflect a tight labor market supporting higher rates.
Revised Unit Labor Costs are expected to come in at 1.6%, up from 1.1%. This is another indicator of inflation. The predicted rise will reflect the presence of rising inflation, which also supports the notion that rates will remain higher for longer than expected.
Short-Term Outlook
Gold’s three-day rally may have been tied fundamentally to the weaker U.S. Dollar, but that line of thinking isn’t last very long if Treasury yields continue to rise.
Gold doesn’t pay you any money to hold it. But Treasury bonds do, and the yields are attractive enough to pull money from bullion. Because of this, we expect traders to continue to sell rallies with further downside pressure likely.