Gold Price Outlook Hinges On US Dollar, Bond Yields Divergence

Gold prices struggled for upside follow-through after Monday’s dramatic surge as risk appetite steadied. US President Donald Trump offered hopeful comments about the possibility of a US-China trade agreement, helping to drive a correction after bloodletting at the start of the trading week. The yellow metal inched lower as the improved mood pushed up lending rates, sapping demand for non-yielding assets.

Cycle-sensitive crude oil prices managed a tepid rise, with the WTI benchmark inching upward alongside recovering stock markets. The upswing receded as API reported that US inventories added a hefty 8.63 million barrels last week. That dwarfs the far more modest 29k barrel inflow expected to be reported in official government data due later today.

GOLD, CRUDE OIL PRICES MAY SUFFER AS MARKETS TURN DEFENSIVE ANEW

Looking ahead, markets may swing back to a risk-off setting. Mr. Trump offered ample assurances about an imminent US-China trade pact in recent months only to dial up tariffs and beckon retaliation, so markets may treat his latest pronouncements with suspicion. Meanwhile, soggy Chinese economic data may be matched by similarly downbeat Eurozone GDP and US retail sales figures, stoking global slowdown fears.

Gold will eye the magnitude of divergence in bond yields and the US Dollar if liquidation resumes. A supportive drop in the former amid swelling haven demand for government debt may be counterbalanced if a defensive turn in the markets’ mood puts a premium on the latter’s unrivaled liquidity, sending it broadly higher and sapping the appeal of anti-fiat alternatives.

Crude oil may suffer alongside other sentiment-geared assets in this scenario. Downside pressure may be amplified if EIA inventory figures echo API’s projection. Sellers might be encouraged further if a monthly report from the IEA reveals bets on swelling US output coupled with ebbing demand prospects amid slowing global growth.

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