Gold Fundamental Forecast – September 28, 2016

A combination of events formed a perfect storm on Tuesday to drive gold prices sharply lower. They included a stronger U.S. Dollar, sharply lower crude oil and increased demand for higher-yielding assets like stocks. By the end of the session, December Comex Gold was trading at $1330.40, down $13.70 or -1.02%.

Gold fell on Tuesday, its biggest drop since August 30, after investors rushed into higher-yielding assets following what they believed was a strong performance by Democratic candidate Hillary Clinton in the first presidential debate. Essentially, demand for gold as a safe haven investment fell, simply because Clinton represents the status quo or a safer bet than Trump.

FORECAST

Let’s face it, after performing like a rabbit at a marathon earlier in the year, gold prices have drifted sideways to lower essentially since the post-Brexit high at $1384.40. Sure the market has posted great gains for the year, an event quoted most often in advertising, but it is starting to lose its luster with investors happy to move money into stocks when times are good and into the U.S. Dollar, the Japanese Yen or even the Euro when there is volatility and uncertainty.

Hedge fund investors have also been shying away from gold after its initial rally earlier in the year, seeking better gains in underpriced metals such as silver, platinum and palladium. But even these markets have succumbed to the whim of the money managers who now favor the soft commodities – coffee, sugar and cocoa – for their economic gains.

Right now with gold, it’s all about money flow. And money isn’t flowing into gold as an investment or a hedge against a financial disaster. Until recently, the volatility in the equity markets was extremely low, indicating complacency. It was as if investors were saying “nothing bad can happen to us”. The same thing is happening to gold. No one wants to own it at this time.

I don’t think that investors realize this yet since they seem to be comfortable with prices holding inside a range. But at some point we may see traders hit the panic button and this may occur if the next wave of selling pressure is strong enough to take out the psychological $1300.00 level. On the upside, the key number to take out in order to extend this rally is $1400.00.

So we basically have a market caught between two major psychological levels – $1300.00 and $1400.00. This means we are likely to continue to see prices play both sides of the mid-point at $1350.00 until there is a compelling reason to want to hold gold as a hedge or an investment.

If investors can’t find a reason to buy gold as a hedge or investment then the value traders will take over. If this becomes the case then gold is likely to get pushed lower until it once again becomes a desired asset.