Price of Gold Fundamental Daily Forecast – Gold Bulls Hoping for Steep Stock Market Break

Gold prices rose on Monday as the dollar moved mostly sideways and uncertainty over a U.S. tax reform plan continued to weigh on investor appetite for risky assets. Gold prices also remained stuck in a narrow range, however, as investors awaited more clues on the path of U.S. interest rates.

December Comex Gold futures settled at $1278.90, up $4.70 or +0.37%.

Forecast

The sideways price action is difficult to trade because it suggests the buying and selling is balanced. However, we are fairly certain that the longer the market remains in a range, the more volatile the breakout. We also don’t expect to see a whip-saw move either. In other words, once the breakout to the upside or breakout to the downside begins, we’re fairly certain the move will extend in that direction.

Rising bond yields and expectations of a Fed rate hike in December and as many as three rate hikes in 2018 are definitely putting a lid on any rallies while giving bearish investors an incentive to sell rallies.

Strong demand for higher risk assets are also pressuring gold prices. This is likely to continue as long as investors continue to drive stocks to new all-time highs.

There is a lingering bid coming into the market because of the geopolitical tensions in the Korean Peninsula and the Middle East. This is preventing prices from collapsing. These two issue aren’t likely to go away over the near-term so I expect the market to continue to be underpinned.

The market has already priced in a rate hike in December so this is old news. This leads me to believe that the issue with tax reform and the direction of the stock market will have the most influence on direction of gold prices over the near-term.

If the debate on tax reform looks like it is going to be a prolonged event or if the corporate tax breaks aren’t going to be implemented until 2019 then gold could catch a bid. These two events could drive stock prices lower and force the Fed to alter its plans for at least three rate hikes in 2018. Both of these factors are likely to drive the dollar lower which should make gold a more attractive investment.

The problem right now may be in the pricing of gold. Investors have to figure out what gold is worth given a December rate hike and what gold will be worth in the future if the Fed has to reduce the number of rate hikes. Given this difficulty, prices are likely to remain rangebound until investors get enough clarity to make a decision.

Keeping it simple, the best scenario for gold bulls will be a sharp break in the stock market.