Price of Gold Fundamental Daily Forecast – Euro Rebound Could Pressure Gold Prices

Gold prices are trading nearly unchanged early Tuesday after the market failed to follow-through to the upside following yesterday’s 1.27% gain. Traders also learned on Tuesday that the U.S. Dollar/Gold relationship is based on long-term studies and the two assets can and will trade in the same direction at times.

At 0650 GMT, December Comex Gold is trading $1207.50, up $0.50 or +0.04%.

Despite a stronger dollar on Tuesday, gold futures surged on increased safe-haven demand on concerns over Italy’s plans to suppress its budgetary deficit.

Buyers jumped into gold after European Union (EU) officials expressed concerns about Italy’s weak budget plan. They felt that it would actually widen the deficit significantly. Investors aggressively sold the Euro as the Italian deficit revived fears of the Euro Zone debt crisis from 10-years ago. Traders learned at that time that it is better to sell the Euro first and ask questions later.

Forecast

The strong rally in gold doesn’t mean the trend is getting ready to turn higher. Longer-term gains are still likely to be capped by expectations of rising U.S. interest rates. However, in the short-run anything goes if there is a catalyst that enhances the market’s appeal as a safe-haven asset.

Yesterday, for example, investors were so worried about protecting their assets that they scrambled to Treasury bonds, the Japanese Yen and gold. This type of movement is likely to continue over the near-term only if the situation in Italy escalates.

Since many traders feel the move was a knee-jerk reaction fueled by aggressive short-covering by a few of the weaker shorts, we cannot deny that new short-sellers stand ready to re-enter at more favorable prices.

The Euro is trading higher early Wednesday. If this is being fueled by reports that the worst in Italy is over then gold could continue its downtrend as early as today. Any news that suggests tensions over Italy are easing should be bearish for gold because the longer-term fundamentals are intact. These include a hawkish Fed, rising interest rates and safe haven buying of the dollar due to trade concerns.

In order to trigger a change in trend to up on even the daily chart, the news is going to have to be major enough to chase the biggest shorts out of the market.

In other news, Wednesday is a big day as far as U.S. economic data is concerned. The slew of data could move the gold market, but it doesn’t have to especially if the news is overridden by escalating tensions between Italy and Euro Zone officials.

The U.S. session starts with a speech from FOMC Member Barkin and ends with a speech by Fed Chair Powell. Sandwiched in between are speeches by FOMC Member Brainard and FOMC Member Mester.

As far as economic data is concerned, the ADP Non-Farm Employment Change report will give investors an early peek at Friday’s U.S. Non-Farm Payrolls report. It is expected to show the private sector of the economy added 185K jobs in September.

Final Services PMI is expected to come in at 52.9. The major report is the ISM Non-Manufacturing PMI. It is forecast at 58.0, down slightly from 58.5.