Price of Gold Fundamental Daily Forecast – Massive Short-Covering Rally Alleviates Oversold Conditions

A softer U.S. Dollar and aggressive profit-taking is helping to fuel a massive short-covering rally in gold futures on Thursday. Gold is paring heavy losses this week which drove the market to slightly above the December 22, 2016 main bottom at $1166.60 earlier today.

At 0832 GMT, December Comex Gold futures are trading $1187.20, up $2.20 or +0.19%.

Shorts began to cover when gold hit $1167.10. The buying has been strong enough to drive the market back over the January 3, 2017 bottom at $1184.00, taken out on Wednesday. The fact that hedge fund and money managers are net short gold may be contributing to the move. The heavy shorting may have put the market in a technically oversold position.

Fundamentally, an easing of tensions over the financial crisis in Turkey and the news that the U.S. and China have scheduled a meeting for late August to discuss trade relations are the catalysts behind today’s rally.

The size of the rally and the price action has put gold in a position to shift momentum to the upside. However, this does not mean the trend is changing to up. The move is primary designed to alleviate some of the tension in the market after this week’s steep sell-off. In this case, it probably only means the buying is greater than the selling at current price levels. This is also an indication that gold buyers may have found value as the market neared a pair of bottoms at $1166.60 to $1162.00.

Short-term, a weaker U.S. Dollar and cheap prices could bring speculative buyers back into gold. The daily chart indicates that if the upside momentum continues, $1205.90 to $1215.10 is a reasonable target zone. Since the trend is down, sellers are likely to show up on a test of this zone.

Longer-term, gold is likely to remain under pressure because of the Fed’s hawkish monetary policy. Rising interest rates tend to make gold a less-attractive investment because holding the metal doesn’t pay interest. Furthermore, higher rates make the dollar a more attractive investment and this tends to lower foreign demand for dollar-denominated gold.

Basically, don’t read into the rally too much. It’s just price action at this time. I don’t expect the rally to last because there is no support base. The height of the market is usually determined by the length of the base, and all we’re looking at is short-covering, not real buying.