Gold Fundamental Forecast – October 26, 2016

Higher demand helped underpin gold prices early in the session, but a technical closing price reversal top formation by the U.S. Dollar drove the market higher into the close. The December Comex Gold futures contract finished the session at $1274.30, up $10.60 or +0.84%.

Gold has been consolidating recently with a bias to the upside, but the absence of a catalyst to drive it out of the range, limited its upside ability. On Tuesday, demand from India helped protect the downside as investors bought cash market gold in preparation for upcoming festivals including Dhanteras and Diwali.

The market started to pick up strength throughout the session after the release of a weaker-than-expected Conference Board Consumer Sentiment report. It showed that consumer felt the economy will continue to expand but at a moderate pace.

According to the Conference Board, the Consumer Confidence Index fell to 98.6 in October, down from 104.1 in September. Economists were looking for a 101.5 read in October.

Lower 10-year Note and 30-year Bond yields also pressured the dollar. A sharp decline by U.S. stock indices into the close may have also helped support gold as investors pulled money out of the higher-risk stock market and put it into the safety of gold and the lower-yielding Japanese Yen.

Forecast

A combination of technical and fundamental factors have put gold in a positon to break out to the upside over last week’s top at $1275.90. The technical picture is clear, however, given the downtrend, gold is going to need a catalyst to drive it through the recent top with conviction.

If gold gets support from a weaker dollar, falling Treasury yields and another sell-off in the equity markets, we could see prices surge through $1275.90. The chart pattern suggests that the best upside target is $1295.70.

On Wednesday, traders will get a chance to react to a slew of minor U.S. economic reports. I don’t feel that they will have much of an impact on the price action, however. Traders are already looking forward to Thursday’s Durable Goods and Friday’s Advance GDP reports.

The momentum into the close suggests gold is ready to run to the upside, however, it needs help from the aforementioned outside markets.

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