Price of Gold Fundamental Daily Forecast – Falling Stocks May Be Underpinning Gold

Gold prices are trading steady early Monday in response to a steady U.S. Dollar. However, the market is trading inside Friday’s range. This suggests trader indecision and impending volatility.

At 0838 GMT, April Comex Gold futures are trading at $1337.30, unchanged.

Traders are a little uncertain about how to play the gold market because of a few counter-intuitive measures taking place. Firstly, Treasury yields are soaring. Higher rates should be putting pressure on gold and may actually be behind the market’s recent weakness.

However, rising yields should be making the U.S. Dollar a more attractive investment. But the dollar is hovering slightly above three year lows. This may be why gold is holding above its recent low. If the dollar were to break to new three year lows then gold may rally. If the dollar establishes support at current price levels and rallies then gold could break through short-term support.

Finally, gold could be getting propped up by the steep plunge in the stock market. As traders shed risky assets, they tend to move money into lower-yielding, lower-risk assets like gold.

 

Forecast

I have to conclude that the direction in gold today will be determined by the movement in the U.S. Dollar. Simply stated, stronger dollar, weaker gold or weaker dollar, stronger gold.

Gold traders will also be watching Treasury yields and the stock market. Rising yields tend to be bearish for gold. Falling stocks tend to be supportive for gold.

As far as economic reports are concerned, minor reports include Final Services PMI and the Loan Officer Survey. The major report is the ISM Non-Manufacturing PMI. It is expected to come in at 56.5, up slightly from the previous 55.9.

The trend is up, but the market is getting close to the recent bottom at $1329.10. A trade through this level will change the main trend to down. If this generates enough downside momentum then we could see a test of at least $1306.60 later in the week.

I don’t think we can think about the long side of the market unless buyers can push gold back over $1349.80.