Price of Gold Fundamental Daily Forecast – Another Jump in Yields Could Send Prices Plunging into $1757.40

Gold futures are inching higher on Wednesday while straddling the major support zone and potential trigger point for a $50 break at $1800.00 to $1795.00 on Wednesday.

With the U.S. Dollar trading higher than it was on Friday when the government released its August Non-Farm Payrolls report, I think it’s safe to say that the bullishness generated by that data has been erased. That leaves some traders still holding the bag after Friday’s attempted breakout to the upside.

And if they are forced to liquidate those long positions on heavy selling volume through $1795.00 then look out to the down side since the nearest support doesn’t come in until $1757.40 to $1738.60.

At 12:12 GMT, December Comex gold futures are trading $1802.80, up $4.30 or +0.24%.

Fundamentally, gold is being pressured by higher U.S. Treasury yields, which increase the opportunity cost of holding non-yielding bullion. Higher yields are making the U.S. Dollar a more attractive asset, which is making gold more expensive for holders of foreign currencies.

Taking these two factors into consideration and adding in the uncertainty ahead of a European Central Bank (ECB) policy decision on Thursday, and you have several good reasons why gold is not an attractive investment at this time.

Further compounding the bullish outlook for gold that some may hold is the growing concern that the Fed will eventually begin tapering before the end of the year despite what the labor market looked like in August.

The price action this week suggests that buying gold on a weak headline number was the wrong thing to do especially when two-third of the report – the unemployment rate and average hourly earnings – were indicating a strengthening economy.

Another problem was the buying of strength or the attempt to breakout to the upside on Friday, the day before a major U.S. bank holiday. Buying strength ahead of a holiday is very risking because of the thin volume. Rogue traders and computers usually paint the tape that day to make a breakout look attractive.

Our work suggests that you’re better off buying a break into near-term support at $1757.40 to $1738.60 over the near-term to get some bang for your buck. Buying strength is not the best strategy at this time of uncertainty.