Price of Gold Fundamental Daily Forecast – Gains Remain Capped by Rebounding Dollar, Treasury Yields
Gold futures are trading flat on Tuesday in what looks like a position-adjustment to the steep three-day sell-off. The U.S. Dollar is trading relatively flat when compared to the recent price action, which could be giving some support, but gains are likely being capped by another surge in U.S. Treasury yields.
At 13:23 GMT, February Comex gold futures are trading $1850.80, unchanged.
Typically, the first leg down from a top is fueled by long liquidation. That likely caused the break from $1862.50 to $1817.10. The next move up should be a retracement of that break, which should be at least 50% of the decline. In this case, the target is $1889.80.
Since the main trend is now down, a move back to $1889.80 should be met by renewed shorting pressure if the gold market is setting up to turn bearish. Overcoming this level, however, could mean another retest of the resistance zone at $1933.20 to $1972.40. The same zone that stopped the rally last week at $1962.50.
We were a little surprised by Monday’s reversal to the upside. Not really by the move, but by where it started. We were expecting this type of price action following a test of the major long-term retracement zone at $1780.50 to $1705.20.
We could still get that break but we’re going to have to be patient. We’re not bullish gold, but we’re not 100% bearish either. Our work suggests a rangebound trade for much of this year with support being provided by fiscal stimulus from the government and monetary stimulus from the Federal Reserve.
Inflation fears may be providing some support as aggressive speculative buyers bet that inflation will be driven by more U.S. fiscal stimulus under President-elect Joe Biden, but as prices inflate, the chances of the Fed ending their bond buying spree will rise. This too supports the notion of a rangebound trade.
The long-term picture for gold continues to be well-supported, but over the short-run gold prices are likely to remain capped by a rebound in the U.S. Dollar and Treasury yields.
Given the current rising yield environment, chasing gold prices higher probably carries the most risk unless the move is supported by an unexpected, rapid decline in yields. Therefore, your best opportunity to own gold at this time is following a break into a value area. Our work indicates that $1780.50 to $1705.20 is the closest value area.