Price of Gold Fundamental Daily Forecast – Focus Shifts to ECB Policy Statement, Draghi Comments

The weaker U.S. Dollar helped drive gold prices reach the next major objective at $1370.00 earlier in the session. The buying actually fueled a move to $1370.50 before prices retreated. If the rally continues later in the session, we could see a test of the futures contract August 2016 top at $1396.20.

At 1230 GMT, April Comex Gold is trading $1363.40, up $2.00 or +0.15%.

The March U.S. Dollar Index futures contract continues to be the primary driver of the price action in gold. The key objective for the dollar index is the December 16, 2014 main bottom at 88.067. We could see a technical bounce on the first test of this level which is likely to correspond with a short-term top in gold prices.

However, as we approach this level, the selling may begin to slow so be careful chasing gold prices higher at current levels. In this case, buying dips may be a more attractive strategy. As you can see by today’s price action that buying strength can get you burned. Anybody that bought the breakout through $1370.00 earlier in the session, for example, is currently holding a losing position.

Fundamentally, the U.S. Dollar plunged on Wednesday after Treasury Secretary Steven Mnuchin told the World Economic Forum in Davos that “obviously a weaker dollar is good for us as it relates to trade and opportunities”. His comments were seen as a departure from traditional U.S. currency policy.

Forecast

The immediate focus for traders today will be the European Central Bank’s monetary policy decision and subsequent press conference by ECB President Mario Draghi. If the ECB and Draghi are hawkish then look for the Euro to surge against the U.S. Dollar. This could trigger another aggressive spike to the upside by gold. The precious metal may also be supported by weaker demand for higher-yielding assets like the stock market.

Gold’s charts are looking increasingly constructive and likely to push higher on technical momentum alone. Consistent dollar weakness will be the catalyst behind the momentum. Gold could spike higher if dollar investors decide to sell the Greenback with both hands. If it doesn’t spike higher, then it should continue to be supported on the dips into support.