Price of Gold Fundamental Daily Forecast – Increased Demand for Risk is Limiting Gains

A technical rally in the U.S. Dollar Index due to oversold conditions is putting a lid on gold prices early in the session on Monday. Although gold is trading higher, the futures market showed no follow-through to the upside following Friday’s strong gains that were generated by disappointing U.S. economic data and the perception that the U.S. Federal Reserve would be encouraged to refrain from its third interest rate hike later this year.

At 0600 GMT, August Comex Gold futures are trading $1230.10, up $2.60 or +0.21%.

Forecast

Gold traders should focus on the direction of U.S. Treasury yields and not so much on the direction of the U.S. Dollar today for guidance. Gold should continue to be underpinned by falling Treasury yields. The dollar index is oversold so we could see more short-covering later today.

The dollar index is also being influenced by the movement in the Euro. Euro traders are preparing for a European Central Bank announcement later in the week so the dollar index may not be the best indicator of the strength or weakness in gold this week.

Rising stock prices, an indication of increasing demand for higher-risk assets, could also limit gains in gold. Stocks could continue to strengthen due to softer interest rates and expectations of a strong earnings season.

Also today, risk sentiment is being strongly influenced by Chinese economic data which beat expectations. Earlier today, China reported second-quarter gross domestic product rose 6.9 percent from a year ago. This news appears to be helping equity prices more than gold prices.

The trend is down in gold, but momentum is trending higher. However, gold has to overcome $1232.00, in my opinion, to get bullish traders excited. Otherwise, we’re just looking at a rally in a bear market.