Price of Gold Fundamental Daily Forecast – Falling US Bond Yields Main Price Driver

Gold futures are edging higher early Thursday with investors continuing to seek protection for a hedge against possible inflation as more stimulus is rolled out to support pandemic-hit economies. Meanwhile, spot gold remains steady near a nine-year peak. The key catalysts behind the market’s strength are falling U.S. bond yields and a weaker U.S. Dollar.

At 09:07 GMT, December Comex gold is trading $1907.20, up $14.50 or +0.77%.

After attributing the rally in gold to the surge in coronavirus cases for weeks, the news services have dropped that narrative and are now saying that rising tensions between the U.S. and China are encouraging safe-haven buying. Once again they are wrong in their assessment.

Escalating tensions between the two economic powerhouses are encouraging investors to buy U.S. Treasurys. This is driving down interest rates, thereby, weakening the U.S. Dollar. When the dollar weakens, dollar-denominated gold becomes a more attractive investment.

We’ve said for weeks that fresh stimulus and rates moving close to zero percent are bullish for gold. That’s what professionals are watching. They don’t trade their feelings which is what buying gold as a safe-haven asset is.

With so much money being made on the long side in gold, it’s probably a good idea to starting thinking about an exit strategy. If you’re a long-term investor then you may not care about booking profits. Your only interest may be to identify a new entry point. Besides the gold investors who bought the precious metal nine years ago are getting close to break-even so they may want to stick with their long positions.

But if you’re a short-term trader then you probably should think about an exit strategy because markets don’t go up forever. From a technical perspective, the last three breaks in gold have been about $38 from a high. With $1915.40 the new contract high, short-term traders should be aware that they are risking about $38 of profit. This makes $1877.40 a potential downside target.

Remember it’s only a target. You’ll have to decide if you want to buy more for another leg up, or if you want to exit the market at this level or risk a further decline. Know what you’re going to do before it corrects $38.00. Don’t wait until it does.

Fundamentally, something could happen that drives investors back into the U.S. Dollar and the rally could be spectacular. This entire break in the U.S. Dollar has been about shedding long positions initiated during the early stages of the crisis. Therefore, I have to conclude that the dollar is getting close to a value area.

Furthermore, we could see another sharp sell-off in the stock market. If this were to happen then gold investors may start to sell their positions to raise cash to cover losses or meet market calls.

Hedge, safe-haven, and investment – whatever you want to call gold – it still moves up and down like any other market. So don’t always think long, you may be wrong at some point and it may take you nine years to get your money back. Short-termers – start thinking about an exit strategy.