Price of Gold Fundamental Daily Forecast – Firmer on Weaker Dollar or Central Bank Buying

Gold futures are trading higher on Tuesday with the market garnering support for a second day from a weaker U.S. Dollar. The greenback is losing ground today against all major currencies, but it’s difficult to pinpoint the main reason for the selling pressure.

It’s hard to believe that U.S. Dollar investors have just abandoned the greenback’s appeal as a safe-haven asset so we’re going to attribute the weakness to technical factors and position-squaring ahead of the release of the minutes from the U.S. Federal Reserve monetary policy meeting on Wednesday.

At 09:39, June Comex gold is trading $1305.80, up $3.90 or +0.30%.

We’re not going to be looking for a reason for gold’s strength, but we’re going to be watching the U.S. Dollar because gold is mirroring the greenback’s movement.

On Monday’s traders suggested that safe-haven buying was behind the rally because stocks were weaker at the time. They changed their minds later when stocks recovered and sellers increased pressure on the dollar. Traders also mentioned oversold technical factors are the reason for the short-covering rally.

Last week’s news from the Commodity Futures Trading Commission (CFTC) that hedge funds and money managers reduced long positions could be another reason for the technical bounce. After all, why not start a rally after blowing all of the weaker longs out of the market.

Also, the world’s largest gold-backed exchange-traded fund, SPDR Gold Trust, reports major liquidation last week. Additionally, it fell for a sixth straight session on Monday. This move by investors only raises more questions about the direction of the gold market.

Friday’s mixed U.S. jobs report wasn’t enough to move gold very much, but when combined with other reports showing weakness in the U.S. economy, one can build a case for building a bottom at current price levels.

Traders are also saying that there are signs of central bank buying. Reports showed China raised its gold reserves by 0.6 percent in March as well a Turkey, but that data is old news unless they are continuing to buy on the way down. Perhaps central banks are selling the dollar to drive their long gold positions higher.

Daily Forecast

After going through the list of fundamental reasons for gold to rally, we have to conclude the only reason was the weaker U.S. Dollar. This is going to be our indicator today so we’ll be looking for news that could affect the U.S. Dollar.

In the U.S., we’re looking at another light report day on Tuesday. Traders will get the opportunity to respond to the NFIB Small Business Index, the JOLTS Job Openings and the IBD/TIPP Economic Optimism Index. We could see a reaction in the AUD/USD and NZD/USD if there are big misses to the downside in these three reports.

Additionally, investors will be paying close attention to speeches by FOMC Members Randal Quarles and Richard Clarida. Traders will be looking for comments on future Fed policy decisions that could have an impact on the dollar and gold.

Quarles and Clarida spoke recently and here’s what they had to say:

On March 29, Fed Vice Chairman Randal Quarles said that additional rate hikes “may be necessary at some point.” He also expressed confidence in the economy, saying the labor market remains strong, productivity is improving and inflation is in check.

On March 28, Fed Vice Chairman Richard Clarida said the Fed can’t ignore U.S. exposure to overseas risks. “One hears a great deal about the spillovers of U.S. monetary policy to other economies. One hears somewhat less, though, about how global shocks affect the U.S. economy,” Clarida said.

Look for gold prices to firm if Quarles and Clarida come across as dovish.