Gold Fundamental Forecast – December 6, 2016

Confusion over the outcome of the Italian Referendum helped trigger a volatile two-sided trade in the gold market on Monday. Shortly after the opening, buyers came in to support gold because of political uncertainty and a steep drop in the Euro.

However, a gap higher opening by the U.S. Dollar encouraged nervous longs to exit their counter-trend positions. A complete recovery by the Euro also pressured gold prices as well as a sharp rise in U.S. equities. The selling pressure was strong enough to drive gold into $1158.60, its lowest price since early February.

After hitting the low for the day, gold mounted a strong recovery itself, recapturing more than 50% of the day’s range. This could be an indication of aggressive counter-trend buying.

February Comex Gold futures closed at $1176.50, down $1.30 or -0.11%.

Forecast

Sellers had a chance to crush gold on Monday, but bottom-pickers prevented this complete wash-out when they stepped in at $1158.60. The rally from the low could gain traction on Tuesday if the U.S. Dollar continues to weaken. However, gains are likely to be capped because of the strong U.S. equity markets.

So the best case scenario for gold is a sideways to higher trade if the dollar weakens and stocks stay firm. The worst case scenario will be a strong dollar coupled with a strong stock market. The best case scenario for gold will be a weaker dollar and a weaker stock market.

Technical factors could play a role in the direction of the gold market. If enough buyers come in to drive the February Comex Gold futures contract back over $1181.00 then this could trigger a massive short-covering with $1190.20 and $1199.20 the next two potential upside targets.

If technical traders come in to defend $1181.00 then we could see another test of yesterday’s low at $1158.60.

The major downside target is last December’s bottom at $1055.20. If aggressive counter-trend buyers don’t continue to come in to prevent a huge breakout to the downside then sellers are going to continue to chip away at the minor support levels, or try to take it all in one massive sell-off.

Watch the price action and order flow at $1181.00 today. If the dollar and stocks weaken then we could see a breakout over this level. If the dollar and stocks strengthen then this price is likely to be resistance.