Gold Weekly Fundamental Analysis, October 6 – October 10, 2014 Forecast

Profit-taking and position squaring helped hold up the December Comex Gold futures market for most of the week, giving hope to the aggressive bottom-pickers who were banking on a reversal to the upside. By the time the week-ended, however, the market had finished within striking distance of the major bottom at $1185.00.

The catalyst behind the sell-off last week was the better-than-expected U.S. Non-Farm Payrolls report. Traders went into Friday’s report looking for the news that showed the economy added 215K new jobs. Instead, the U.S. Labor Department reported a figure of 248K.

This news sent the U.S. Dollar soaring, pressuring dollar-denominated gold prices lower. This trend is likely to continue as long as the U.S. economy continues to strengthen and the Greenback maintains its rally.

The divergence in policy between the major central banks is also helping to drive gold lower. At this time, the Fed is considering raising interest rates while the Bank of England remains hesitant. The central bank in Japan, Europe and New Zealand are all in favor of weaker currencies, providing additional support to the U.S. Dollar.

Although hedge and commodity funds are short, they may be looking to lighten up a little and book some profits at current price levels. This may cause a few short-term counter-trend spikes, but because of the bearish fundamentals, these moves may be short-lived and likely to attract fresh shorting pressure.

Watch for a test of the December 31, 2013 bottom at $1185.00 this week. Traders should be prepared for a technical bounce because of profit-taking. For the most part, the geopolitical events in Ukraine and the Middle East have had almost no effect on gold prices. Nonetheless, they should be watched for surprises.