Price of Gold Fundamental Daily Forecast – Could See More Short-covering ahead of Yellen Remarks

Gold futures reversed earlier weakness to close higher on Monday. Buyers came in as the market approached its March 10 bottom at $1201.40. There were no changes in the fundamentals so the buying was likely fueled profit-taking, short-covering and some aggressive counter-trend buying. Traders were also squaring up positions ahead of the start of Fed Chair Janet Yellen’s two-day testimony before Congress on Wednesday.

August Comex gold futures settled on Monday at $1213.20, up $3.50 or +0.29%.

Yellen is expected to speak solely on monetary policy. She is likely going to reiterate the Fed’s monetary policy statement. Therefore, investors should expect to hear her say the Fed acknowledges the low inflation, but that this is likely temporary. She is also expected to talk about the strength of the labor market while stating that she eventually expects wages to rise as employers raise wages to retain employees. Yellen is also expected to say the central bank is prepared to begin reducing its balance sheet and that it will do this gradually so that the move doesn’t cause volatility in the markets and the economy.

Yellen may be asked to explain current risks in the market place especially since the Fed said it was surprised that bond market and stock market investors hadn’t reacted appropriately to the three previous rate hikes.

Forecast

On Monday, traders will get a chance to react to minor reports including the NFIB Small Business Index. It is expected to come in at 104.4, slightly below the previous month. The JOLTS Job Openings report is expected to show 5.98 million. This is also slightly below the previous 6.04 million. U.S. Final Wholesale Inventories are expected to come in unchanged at 0.3%.

FOMC Member Lael Brainard is also scheduled to speak at 1630 GMT. She is a noted dove so she may try to talk down the possibility of a Fed rate hike later in the year.

The current chart pattern suggests that there is room to run to the upside, but given the bearish fundamentals, led by rising global interest rates, any rally is likely to be stopped at $1232.00 to $1238.60. I also think bearish traders will be a little reluctant to short into the March bottom unless there is surprise news.