Price of Gold Fundamental Daily Forecast – Lower Prices Expected Until Euro Hits Short-Term Bottom

Gold futures are trading lower shortly before the regular session opening on Thursday with many traders saying the stronger U.S. Dollar is behind the move. But what’s making the dollar stronger?

A week ago, most gold bulls believed the dollar was going to plunge to a new multi-year low after the Fed announced a policy change that would nearly guarantee interest rates would remain at or near historical levels for years.

At 10:05 GMT, December Comex Gold futures are trading $1937. 10, down $7.60 or -0.39%.

Since August 28, the benchmark U.S. 10-year Treasury Note yield has fallen sharply and is now at their lowest level since August 11. As we’ve seen in the past, lower yields are bullish for gold, but not this time. Yields are falling and gold prices are weakening.

Furthermore, when U.S. yields fall, the U.S. Dollar tends to be a less-attractive asset.

Well something changed and I think it’s the outlook for the Euro. Technical traders will say that the Euro rally was overextended, but nobody was saying the sell-off in the U.S. Dollar was overextended. This is because analysts and investors believed what they wanted to believe.

The Euro represents about 57% of the U.S. Dollar Index, so when the Euro gets creamed, the dollar index tends to spike higher.

Based on this assessment, I have to conclude that gold prices are being manipulated by the plunge in the Euro and not buy any actions from the Fed, Treasury yields or economic reports. But why is the Euro breaking so hard?

The Euro is continuing its counter-trend sell-off because of profit-taking and technical resistance to the 1.2000 mark hit Tuesday and because of comments from European Central Bank (ECB) chief economist Philip Lane, who said that the Euro/Dollar rate “does matter” for monetary policy. Lane’s comments show that ECB policymakers were rattled by the recent rapid appreciation of the Euro and the dramatic plunge in the dollar.

Short-Term Outlook

The ECB is worried about the rapid rise in the Euro and its potential negative impact on the Euro Zone’s economic recovery. But that’s not all, earlier in the week, the Euro Zone reported negative inflation, which likely means the need for more stimulus if the trend continues.

Looking at it another way, perhaps the tide has turned and investors now believe the U.S. economy is picking up strength while the Euro region is getting weaker. After all, the Fed is talking about trying to get inflation at and over 2.00%, while the ECB may have to come up with policy changes that only turns inflation positive.

Look for gold to continue to weaken until the Euro hits a short-term bottom.