Price of Gold Fundamental Daily Forecast – Falling Yields, Weak Dollar: Time to Shake Out the Weak Shorts

Gold futures are trading nearly 1.5% higher on Tuesday and rapidly approaching a major technical level that could trigger an acceleration to the upside later today. The catalyst behind the move is a decline in U.S. Treasury yields and a subsequent weaker U.S. Dollar. The move follows a slide into a nine-month low in yesterday’s session.

At 12:29 GMT, April Comex gold futures are trading $1704.10, up $26.10 or +1.56%.

We’re not looking for a major turnaround, but this move can be a big one if the bearish pattern is broken on the daily chart. A combination of aggressive short-covering, profit-taking and speculative buying fueled by a drop in yields and a weaker U.S. Dollar can drive prices close to the last main top at $1815.20 if the above factors line up correctly.

Longer-term, standing in the way of a major rally is the long-term retracement zone at $1711.70 to $1787.30. But crossing to the bullish side of this zone, will at least temporarily, give bullish gold traders some peace of mind that they are once again in control of this market.

Besides the aforementioned lower Treasury yields and weaker dollar, the market just turned too bearish. I started to see subtle signs of buying last week when I mentioned the rate of the decline was slowing although the market kept making lower-lows.

I also mentioned over the weekend that I started to see a slight divergence from Treasury yields after the release of Friday’s stronger-than-expected U.S. Non-Farm Payrolls report. These may have been early signs of accumulation.

Remember, only underfunded small speculators feel the need to catch a bottom. Well-funded professionals like to accumulate in low ranges. Sometimes they catch the low, sometimes they don’t. But what their good at is catching the turn. All you can hope for is to be a part of the turn when prices start to move higher. That’s the move we are looking for at this time. Basically, an unexpected short-covering rally, fueled by lower yields and a weaker dollar.

We don’t care what makes yields drop or the dollar go down, but we know we need to trigger a counter-trend rally in gold. I suspect that position-squaring ahead of next week’s Fed meeting is partly responsible for today’s developing strength. (If you don’t know about the Fed meeting cycle, I suggest you do some research.)

Finally, last week I mentioned jokingly that gold would rally when the newsletter writers turned bearish. Take a look at the recent gold pieces on the website. Sometimes the excessively bearish headlines are the best contrarian indicators.

For a look at all of today’s economic events, check out our economic calendar.