Gold futures are trading lower early Friday in the wake of rising global yields and ahead of today’s U.S. Non-Farm Payrolls report. The market is also in a position to post its biggest weekly decline in two months.
At 0614 GMT, August Comex gold futures are trading $1220.20, down $3.20 or -0.25%.
The primary driver of the bearish price action is rising global yields. Gold has been weighed down since last week when the European Central Bank, the Bank of England and the Bank of Canada hinted that they were considering a tighter monetary policy.
On Thursday, U.S. Treasury yields rose with benchmark yields touching nearly eight-week highs. The benchmark U.S. 10-year Treasury yield climbed to 2.38 percent.
The 10-year German Bund yield cracked the 0.50 percent level for the first time since January 2016.
Forecast
The primary focus for gold traders today will be the U.S. Non-Farm Payrolls report, due to be released at 1230 GMT.
The headline number of the NFP report is expected to show the economy added 175K new jobs in June. Some traders are looking for an even lower figure given Thursday’s disappointing ADP report. The unemployment rate is expected to remain at 4.3% and Average Hourly Earnings are expected to show a slightly increase from 0.2% to 0.3%.
Late in the session, the U.S. Federal Reserve will release its semi-annual monetary policy report to Congress at 1900 GMT. This will precede next week’s testimony by Chairwoman Janet Yellen.
A stronger-than-expected NFP report should help drive up U.S. Treasury yields because it will help support the Fed’s case for another rate hike later in the year.
A weaker-than-expected NFP report will raise doubts about a Fed rate hike later in the year because it will suggest the labor market is leveling off. Treasury yields could fall on the news. This may not trigger a rally in gold, but it could lead to stabilization and a possible short-covering rally.
I wouldn’t pay much attention to the U.S. Dollar Index because it is heavily weighted in the Euro. The direction of the gold market will be determined by the direction in the Treasury yields. Higher yields will be bearish for gold. Falling yields will be supportive. It’s that simple.
The wildcard is North Korean. If there is an escalation of the problem or military activity, flight to safety buying should drive gold prices higher.
This article was originally posted on FX Empire