Price of Gold Fundamental Daily Forecast – Mexico Deal Encouraging Traders to Lift Dollar Hedges

Gold prices are edging higher early Tuesday with the dollar under pressure in the wake of a trade deal between the United States and Mexico. This comes as a surprise to some traders in the wake of Friday’s Commodity Futures Trading Commission report which showed hedge funds and money managers increased their record short positions during the period ending August 21.

At 0835 GMT, December Comex Gold futures are trading $1219.40, up $3.40 or +0.28%. The dollar is trading lower against a basket of currencies. September U.S. Dollar Index futures are trading 94.660, down 0.024 or -0.03%.

Gold bottomed at $1178.10 on August 16 following what looks like an exhaustion move fueled by an easing of tensions in Turkey. From August 13 to August 16, gold futures plunged from $1221.40 to $1167.10, or $54.30 in 4 trading sessions. Today, the market is within $1.00 of erasing all of those losses. So essentially, it has erased the negative impact of Turkey’s “mini” currency crisis.

With concerns over Turkey taken out of the equation, investors are likely to go back to focusing on the overall trend of the U.S. Dollar, Treasury yields and Fed rate hike expectations.

Forecast

The new trade agreement between the U.S. and Mexico is weighing on the dollar, helping to support dollar-denominated gold because many professionals had maintained safe-haven positions in the dollar throughout the ordeal. With concerns over Mexico lifted, dollar bulls no longer have to hold on to these hedges.

However, dollar bulls are still holding on to long positions because of the on-going trade dispute between the U.S. and China. Therefore, gold is likely to be limited to the upside. Any trade escalation between the two countries will play favorably into the U.S. Dollar as a risk aversion trade. This likely means that the professionals will continue to hold on to their net short gold positions.

In order to turn gold bullish, the net shorts in gold are going to have to completely flip to the long side. This is not likely to occur unless the US-China dispute is settled early, or if the Fed takes a December rate hike off the table.