Gold Fundamental Forecast – December 21, 2016

Gold prices had a surprisingly wide range on Tuesday before closing lower. Speculators came in early in the session to support the market on geopolitical concerns because of the events in Turkey and Germany, but prices weakened once it became clear that investors were still buying higher-risk assets.

Also pressuring gold was another surge by the U.S. Dollar against a basket of currencies to a 14-year high. The Greenback was supported by expectations of inflation in 2017 due to Trump’s economic plans and rapidly rising Treasury yields.

Dollar buys also continued to react to last week’s Federal Reserve rate hike and projection for three more rate increases in 2017, up from the two projected in September.

February Comex Gold closed at $1133.60, down $9.10 or -080%.

Forecast

The direction of February Comex Gold on Wednesday will be determined by the direction of the U.S. Dollar. A stronger dollar will pressure gold, a weaker dollar will be supportive, but gains will be limited if U.S. equity markets or U.S. Treasury yields continue to rise.

Volume is expected to remain light which can leave gold open to wild price swings because of volatility spikes and pockets of thin volume. Because of these conditions, a simple headline could cause an erratic move with very little volume behind it.

If gold nears the $1100.00 level then I expect bargain hunters and price sensitive buyers to step in to stop the price slide. Relatively cheap prices can also bring in strong physical demand from China or India.

Today, investors will get the opportunity to react to the U.S. Existing Home Sales report. It is expected to come in at 5.52 million units, down slightly from the previous 5.60 million units.

Don’t be surprised if gold firms today on a sustained move over $1135.20. Taking out $1142.00 is also the trigger point for a possible breakout. Prices could expand over this price level on relatively thin volume with $1157.30 the next likely target.

On the downside, a break back under $1135.20 will signal the return of sellers. This could attract fresh selling with $1124.30 the next target.

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