Price of Gold Fundamental Daily Forecast- Needs Sharp Break in Stocks to Trigger Rally

Oversold conditions and a weaker U.S. Dollar helped boost gold futures from near its 7-week low on Wednesday. Gains were limited, however, by another rise in U.S. stock markets. Traders also said they expect prices to consolidate due to below average volume blamed on the Chinese holiday period.

December Comex Gold futures settled at $1276.80, up $2.20 or +0.17%.

Although gold traders were primarily focused on the movement in the U.S. Dollar on Wednesday, the invisible hand of rising expectations of U.S. interest rates and increasing demand for higher risk assets continued to exert its pressure.

The U.S. Dollar weakened against a basket of currencies on Wednesday as investors positioned themselves ahead of Friday’s U.S. Non-Farm Payrolls report, while reacting to fresh economic data and a speech later in the session by Fed Chair Janet Yellen.

In U.S. economic news, according to ADP, U.S. private employers added 135,000 jobs in September, exceeding economists’ expectations even as the hurricanes “significantly impacted smaller retailers.” Traders were looking for a gain of 131,000. Last month’s report was revised down to 228,000.

The ISM Non-Manufacturing Index rose to its highest level since August 2005 in September and the prices paid index reached its highest level since February 2012. The ISM Services Index came in at 59.8, beating the estimate of 55.5.

Late in the session, Fed Chair Janet Yellen did not comment on the economy or monetary policy in prepared remarks at a community banking conference on Wednesday.

The market action late Wednesday seemed to indicate that gold investors have priced in the news that U.S. President Trump will appoint a less hawkish head of the Federal Reserve than previously expected.

At the end of the session, data showed that interest rate futures traders were pricing in an 83 percent likelihood of a December rate increase, up from 78 percent on Tuesday, according to the CME Group’s FedWatch Tool.

Forecast

Gold may continue to consolidate inside a major technical support area on Thursday, mostly due to oversold conditions. Helping to underpin the market will be a weaker U.S. Dollar. Limiting gains will be rising Treasury yields and strong demand for risky assets.

Although gold is set up for periodic short-covering rallies, we’re not likely to see a meaningful rally unless the stock market sells off hard. With the economy strengthening and the wheels in motion for a Fed rate hike, I don’t think stocks will break hard unless North Korea becomes a major issue again.

On Thursday, investors will get the opportunity to react to the Challenger Job Cuts report, weekly Unemployment Claims and Factor Orders.

FOMC Members Jerome Powell and Patrick Harker are scheduled to speak. In June, Philadelphia Federal Reserve Bank President Patrick Harker said that the U.S. central bank remains on track to meet its inflation goal and reiterated his support for a further two interest rate increases this year. This likely means he is going to deliver a hawkish speech which will be bearish for gold.

Powell was recently interviewed by President Trump to replace Fed Chair Yellen. Experts say he would not be a large step away from a Yellen-led Fed and would thus represent policy continuity for markets.