Price of Gold Fundamental Daily Forecast – Initial Test of Key Support Area Fuels Late Session Reversal

Gold futures closed slightly higher on Wednesday after rebounding from a test of its lowest level since November 4. The market was pressured early in the session by higher interest rates and a stronger U.S. Dollar. Both moves were fueled by robust U.S. economic data and nervousness surrounding a possible faster pace of tapering by the U.S. Federal Reserve and a subsequent earlier than expected rate hike.

On Wednesday, February Comex gold futures settled at $1786.90, up $0.60 or +0.03%.

Surprisingly, gold traders showed little reaction to the release of hawkish Federal Reserve meeting minutes. Technically, the market found support just under the main 50% level at $1781.00 before forming a potentially bullish closing price reversal bottom. If confirmed, the chart pattern could trigger a short-term correction back to $1831.10 over the next 2 to 3 days.

US Economic Data Shows Recovery in Full-Swing

The number of Americans filing new claims for unemployment benefits fell to their lowest level since 1969 last week, pointing to sustained strength in the economy as a year marked by shortages and an unending pandemic winds down.

Initial claims for state unemployment benefits tumbled 71,000 to a seasonally adjusted 199,000 for the week-ended November 20, the Labor Department said on Wednesday. That was the lowest level since mid-November 1969. Economists polled by Reuters had forecast 260,000 applications for the latest week.

In other economic news, the third-quarter GDP was revised up slightly to 2.1%, though it missed an estimate of 2.2%.

However, other data points on Wednesday weren’t as solid. Census Bureau said durable goods orders showed an unexpected decline in October. Core PCE, the Fed’s preferred measure of inflation, was up 4.1% year over year in October, matching estimates.

No Surprises in the Fed Minutes

U.S. Federal Reserve meeting minutes reinforced market expectations that the Fed will raise rates sooner than other major central banks.

Minutes from the November 2-3 meeting indicated the Fed had become more concerned about rising inflation as various policymakers said they would be open to speeding up the taper of their bond-buying program if high inflation held and move more quickly to raise interest rates.

Short-Term Outlook

Shorts covered and buyers came in as expected inside the technical support zone at $1781.00 to $1757.10. Some traders blamed the move on the excessive reaction throughout the week to the renomination of Federal Reserve Chairman Jerome Powell. Some said it was profit-taking and position-squaring ahead of the long U.S. holiday weekend. Others said the notion that another wave of COVID-19 cases could force central banks to curtail plans to begin aggressively pulling stimulus and raising interest rates.

I would’ve liked the market to have gone deeper into the support zone at $1781.00 to $1757.10 with a more dramatic reversal to the upside, but we have no control over how it is going to bottom and only an idea of where it could bottom.

If we do get a normal confirmation of the move, we could see a 2 to 3 day rally into $1831.10. A test of that level will be decision time for both the bulls and the bears.