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.
James Hyerczyk
Gold Bars and Dollar
Gold Bars and Dollar

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.

Forecast

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.

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