Price of Gold Fundamental Daily Forecast – Identity Crisis: Is it an Investment, Or a Safe-Haven Hedge?There are quite a few variables influencing the price action which leads me to believe we’re more likely to remain in a range over the near-term. One event that nobody seems to be talking about is the U.S. November elections.
Gold futures are recovering from Monday’s steep sell-off that could have been fueled by a combination of aggressive shorting, weak sell stop placement or lower foreign demand due to a firmer U.S. Dollar. When these moves take place on bank holidays, I like to attribute them to low volume and thin-trading activity.
At 0710 GMT, December Comex Gold is trading $1193.40, up $4.80 or +0.40%.
Traders are saying that today’s early session strength is being fueled by safe-haven bids from risk-averse investors. The buying could be coming from Asia where stocks are under pressure again. Furthermore, renewed concerns over a potential slowdown in China’s economic growth as well as an easing U.S. Dollar could be underpinning the market.
Despite Monday’s sharp break, gold held its recent bottom at $1183.40 and is currently trading inside a minor technical retracement zone at $1195.40 to $1189.10.
The main objective for buyers is to continue to build higher bottoms. Everyone knows were the resistance is, but the key to sustaining a strong rally is to build a solid support base.
The difficulty for gold traders at this time is trying to determine the identity of gold. Is it an investment? Or is it a safe-haven hedge.
If it’s being viewed as an investment then investors will have a difficult time generating enough upside momentum to trigger a breakout through the resistance because of the rising interest rate environment in the United States. This helps support the U.S. Dollar which leads to lower foreign demand for dollar-denominated gold.
If gold starts to take on the identity of a safe-haven asset then demand will have to increase enough to drive out the net short hedge and commodity funds. Only then can we see a bona fide breakout to the upside.
There are quite a few variables influencing the price action which leads me to believe we’re more likely to remain in a range over the near-term. One event that nobody seems to be talking about is the U.S. November elections.
I think you have to be patient with gold at this time because the longer it remains in a range, the bigger the breakout. Additionally, I’m starting to think that a loss by the Republicans in November could create extremely volatile conditions. I’m also leaning toward an upside breakout at that time.