Price of Gold Fundamental Daily Forecast – Pressured as Dollar Surges to New High for Year

Gold futures are trading sharply lower on Friday shortly ahead of the regular session opening. This puts the precious metal on track to post its biggest weekly decline in five weeks. The catalyst behind the selling pressure is the stronger U.S. Dollar. The price action also suggests investors are paring positions ahead of next week’s widely expected U.S. Federal Reserve interest rate hike.

At 1112 GMT, February Comex gold is trading $1242.90, down $4.50 or -0.37%.

The U.S. Dollar is finding broad support from a weaker Euro and British Pound. The Euro was being pressured by downbeat comments from the European Central Bank president about the outlook for the Euro Zone. The Sterling is being pressured by renewed concerns about a hard Brexit.

On Thursday, the ECB announced the end of its 2.6 trillion Euro quantitative easing program. ECB President Mario Draghi also said that monetary policy is most likely to remain accommodative. He also warned that the Euro Zone’s growth outlook is likely to remain weak amid threats of a global trade war.

The Sterling lost ground to the U.S. Dollar after British Prime Minister Theresa May appealed to fellow EU leaders for concessions to help her win support in parliament next month for a deal that can smooth Britain’s exit from the European Union.

Weakness in the Australian and New Zealand Dollars also underpinned the U.S. Dollar. The Aussie and Kiwi were pressured by weaker-than-expected economic data from China. November retail sales grew at the weakest pace since 2003 and industrial production output rose the least in nearly three years.

Next week, the Federal Open Market Committee will hold a two-day meeting on December 18-19. It is expected to vote in favor of a 25 basis point rate hike, its fourth rate hike this year. However, gold traders will be paying more attention to the policy outlook for 2019, which may include fewer than previously thought rate hikes.

Forecast

Besides the stronger U.S. Dollar, it’s hard to find another strong fundamental reason for this week’s weakness in the gold market. Some of the move may be technically related. Not only did the market post a technically bearish reversal top on Monday, but it also broke key trend line support earlier today.

If the downside momentum continues, we’re likely to see a break into the value zone at $1236.70 to $1232.00. Since the trend is up, we’re likely to see buyers re-emerge on a test of this zone.