Price of Gold Fundamental Daily Forecast – In Position to Test Major Support Area at $1306.60 to $1291.50

Gold prices dropped on Wednesday in reaction to a stronger U.S. Dollar and expectations of at least three Fed rate hikes later this year. Helping to fuel some of the losses were comments from San Francisco Federal Reserve Bank President John Williams who said, the Federal Reserve will stick to its plan for “steady, gradual” interest-rate increases.

The U.S. Dollar rose on Wednesday for a fourth straight session against a basket of currencies, helped by steady U.S. Treasury yields and a weaker Euro.

Yields recovered from Monday’s stock market rout as investors shed their safe-haven positions. U.S. government debt yields rose to levels not seen since Friday in response to a soft Treasury auction and on the back of a new budget compromise among congressional leaders.

In other news, Senate leaders announced that they had reached a two-year budget agreement Wednesday afternoon. The deal, which would boost current spending caps by about $300 billion, would include a significant allocation for military spending as well as funding for disaster relief and infrastructure.

Additionally, the volatility in the stock market over recent days did not change the outlook for the U.S. economy or central bank policy, two senior Federal Reserve officials said on Wednesday.

Robert Kaplan, the Dallas Fed president, told the Financial Times that volatility was to be expected in markets and “can be healthy”, adding that he was sticking with a forecast of three increases in short-term interest rates this year.

William Dudley, the president of the Federal Reserve Bank of New York, said separately at a forum in Manhattan that he expected the turbulence to have virtually no consequence for the economic outlook, although further deep declines could start to change the prognosis.

Charles Evans, the Chicago Fed President, said separately in a speech on Wednesday that there was a hint of building pressures that could generate higher costs and prices, but that he wanted to see more evidence in the data. The dovish policymaker reiterated his argument that the central bank can afford to hold off further rate hikes until the middle of the year.

The Euro weakened in the wake of reports that the leader of Germany’s Social Democrats (SPD), Martin Schulz, would not be taking over as finance minister of Europe’s biggest economy. The Euro’s fall accelerated after European Central Bank policymaker Ewald Nowotny told the German Wiener Zeitung newspaper the United States is deliberately weakening the dollar.

Forecast

Gold prices are under a little pressure early Thursday, hovering near its lowest level since January 2. The selling is being fueled by a firmer U.S. Dollar amid expectations of more U.S. interest rate hikes later this year.

Gold is now in a down trend on the daily chart and prices could retreat further if the dollar continues to strengthen and the stock market volatility subsides enough to attract new buyers.

The main range is $1242.70 to $1370.50. Its retracement zone at $1306.60 to $1291.50 is the primary downside target. If the downside momentum continues, we should see a test of this zone today.

We could see a technical bounce on the first test of the 50% level at $1306.60. If it fails, we could see an acceleration to the downside with the Fibonacci level at $1291.50 the next likely target.

The retracement zone is critical to the structure of the gold market so if it fails, prices could retreat rapidly as investors throw in the towel on an upside bias.