Gold Fundamental Forecast – September 29, 2016

The bias in the gold market on Wednesday was mostly to the downside all session as investors reacted to early strength in the U.S. Dollar. Even though stock prices drifted lower early in the session, gold never really caught a bid and the December Comex Gold market finished the day at $1323.70, down $6.70 or -0.50%.

The price action in the gold market highlighted its main issue at this time: who wants to sell it and who wants to buy it. It seems that investors and trader are just content with holding it in a range until they need it. At this time, the same steady flow of capital has been moving in and out of equities. New money is flowing into the breakfast commodities – sugar, orange juice and coffee. And the major hedge funds have been heavily betting on the short side in the crude oil market.

This leaves very little investing capital left for the gold market. Money is going to have to leave a market in order for traders to have the capital to put into gold. This would mean hedge funds and money managers would have to start taking profits in the stock market just as it seems to be ready to move to the next level. Money could begin to flow out of the soft commodities, but this play is just starting and it could last for a while because of the long-term implications of weather-damaged markets. Money could also leave the crude oil market because the volatility has been healthy and because OPEC new agreement may have greenlit the next rally.

The gold market may just be biding its time while it waits for three events to unfold, the formal filing by the U.K. to leave the European Union, the U.S. Presidential election and the Fed’s interest rate decision in December.

FORECAST

Gold may be moving sideways to lower while failing to respond to a weaker dollar and at times a sell-off in the stock market, but it’s the type of market you can’t take your eye off. Because once it decides to move, it will do so with strong conviction.

On the bearish side, the gold market may have to take one for the team if stock investors feel the new OPEC deal is real, and that a victory by Democratic candidate Clinton is a done deal. Both of these events support higher stock prices but not necessarily higher gold prices.

The thing that will attract old and new money to gold will be a break into a value zone. My charts suggest that this market needs to take out the weak longs propping this market up around the psychological $1300.00 level and really clean house on its way to $1225.00. This move should draw the attention of bullish investors who have been waiting on the sidelines since earlier in the year when gold went on its spectacular run.

If gold hits an attractive price and the formal filing by the U.K. to leave the EU causes renewed turmoil in the markets then we could see the start of another rally. This event may take place as early as mid-October. A Trump victory in November will also cause market turmoil.

Remember that gold bottomed last year when the Fed raised rates in December. This came as a surprise because many analysts had predicted lower prices.

I like the upside possibilities in gold, but not at current levels. It would have to take a surprise event to drive gold higher from where it is now. Even if it did spike higher, the move wouldn’t last unless there was some new money supporting it.

For the longer-term bullish gold traders, it is probably best to wait for gold to move into a value area before staking a new positions. At current price levels and given the lack of interest from the hedge funds and money managers, the market is likely to move lower over the near-term than higher.