Price of Gold Fundamental Daily Forecast Needs Weaker Treasury Yields to Sustain the Upside Momentum

Gold prices rallied to a two-week high on Tuesday in reaction to another decline in the U.S. Dollar as investors continued to bet against an imminent rate hike by the U.S. Federal Reserve. Expectations of stronger demand from the physical market also helped boost prices.

August Comex Gold futures closed at $1241.90, up $8.20 or +0.66%.

The Greenback hit a 10-month low against a basket of currencies, helping to increase foreign demand for the dollar-denominated asset. The dollar was pressured by lower Treasury yields and the collapse of U.S. President’s Trump’s efforts to repeal Obamacare and his failure to deliver his own health care plan.

Demand for the precious metal is also starting to pick up. Indian imports are increasing and this trend could continue even the face of major tax changes. According to data from consultancy GFMS, India’s gold imports climbed to an estimated 75 tonnes in June from 22.7 tonnes a year ago. For the first half of the year, imports rose to 514 tonnes, up 161 percent from a year earlier. Traders said Indian customers were buying ahead of an increase in the goods and services tax on gold to 3 percent from 1.2 percent.

Forecast

Despite the current six-day rally, the trend is still down. It’s the momentum that has shifted to the upside. The rally is still being fueled by short-covering, however, we have seen some aggressive buying.

You have to remember that short-sellers took control after the last Fed rate hike in June. They are now adjusting positions in reaction to the possibility the central bank will refrain from increasing interest rates a third time later this year.

Also keep in mind that it’s not the weakness in the U.S. Dollar, per se, that is driving gold prices higher, but falling U.S. Treasury yields.

Fundamentally, the rally will continue as long as the pressure remains on U.S. Treasury yields and consequently, the U.S. Dollar. Technically, the upside momentum will be supported by $1238.60. This could create the upside momentum needed to challenge the next upside target at $1251.40.

A break back below $1238.60 will signal the presence of sellers. This isn’t necessarily bad, however, because I think gold needs a 2 to 3 day correction to attract new buyers and to form a potentially bullish secondary higher bottom.

The current rally in gold could also be limited by increased demand for higher-yielding assets. Gold could weaken considerably if all three major indexes reach new all-time highs.

In economic news, traders will get the opportunity to react to a number of U.S. reports on Wednesday. The major report is building permits. It is expected to come in at 1.20 m. Coming out at the same time is Housing Starts. They are expected to increase by 1.16 million.