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Price of Gold Fundamental Daily Forecast – Could Soar if Dollar Hedge Liquidation Continues

By:
James Hyerczyk
Published: Apr 3, 2019, 04:16 UTC

Gold traders should pay attention to the U.S. Dollar Index and the Euro, which are essentially one in the same. If the Euro starts to rise on optimism that a U.S.-China trade deal will lead to a turnaround in the Euro Zone economy then look for further weakness in the Dollar Index.

Gold Bars and Dollar

Gold is trading higher on Wednesday after forming a potentially bullish technical closing price reversal bottom the previous session. Buyers also successfully defended an attempt to break through the low of the year at $1287.50 after the market closed lower for the year on Monday.

Helping to boost demand for the dollar-denominated asset is a weaker U.S. Dollar. It is being pressured by easing concerns over a global economic slowdown. Traders who bought the dollar as a safe-haven asset are starting to reduce positions as market conditions improve. This may be driving investors back into gold, which they now view as a relatively undervalued asset.

At 03:53 GMT, June Comex gold is trading $1296.90, up $1.50 or +0.12%.

Helping to put a lid on gold prices or at least slow down the rally are firmer U.S. Treasury yields and a stronger U.S. stock market.

Driving investors out of the safe-haven U.S. Dollar on Wednesday is a report that says the U.S. and China are closer to reaching a trade agreement. The Financial Times is reporting that American and Chinese officials negotiating a trade deal have resolved most of the outstanding issues but are still haggling over how to implement and enforce such an agreement.

However, the report cautions that both countries have yet to agree on a number of important issues. Namely, Beijing wants Washington to remove existing U.S. tariffs on Chinese goods and, for its part, the United States wants China to agree to terms of an enforcement mechanism ensuring it abides by the deal, the Financial Times article said.

Daily Forecast

Gold traders should pay attention to the U.S. Dollar Index and the Euro, which are essentially one in the same. If the Euro starts to rise on optimism that a U.S.-China trade deal will lead to a turnaround in the Euro Zone economy then look for further weakness in the Dollar Index.

Furthermore, optimism over a trade deal could drive investors, who bought the dollar as safe-haven protection, out of the greenback. This should also lead to increased foreign demand for the dollar-denominated asset.

Later today, investors should watch for volatility with the release of the U.S. ADP Non-Farm Employment Change report at 12:15 GMT. It is expected to show the private sector of the economy added 184K jobs in March. Final Services PMI, due to be released at 13:45 GMT are expected to come in at 54.8, matching the previous report.

ISM Non-Manufacturing or Services PMI is expected to dip from 59.7 to 58.1. This could raise some concerns over the strength of the economy if it misses on the low side.

The key report is ADP because it is often used to gauge the strength of the U.S. Non-Farm Payrolls, due to be released at 12:30 GMT on Friday. The Fed is counting on job growth and wage growth to hold the economy together while the economy goes through a slowdown period.

Here’s the kicker. Until all the safe-haven dollar buyers are out of the market, there is no telling how these reports will impact gold. Good news for the U.S. economy could also be good news for gold if the dollar weakens. In other words, a stronger-than-expected ADP report may not necessarily strengthen the dollar. It could even drive the dollar lower and gold higher if it encourages dollar hedgers to liquidate their long positions.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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