Price of Gold Fundamental Daily Forecast – Prices Surge but Gains Could Be Limited by Recovery in U.S. Dollar

Gold futures are trading higher on Wednesday amid new signs of a global economic slowdown. The market hit its highest level since June 20, 2018 when it tested $1291.00 before retreating to $1287.00. Technical factors are also playing a role in today’s weakness with the market surging to the upside after taking out Tuesday’s high and a potential technical resistance level at $1285.70. The current chart pattern indicates there is room to rally with $1312.30 the next potential target.

At 1300 GMT, February Comex gold is trading $1286.60, up $5.30 or +0.41%.

Gold spiked to the upside after global equity markets declined in reaction to the lower than expected Chinese manufacturing data released earlier in the session.

According to reports, a private survey of China’s manufacturing for the month of December showed factory activity contracted for the first time in 19 months. Traders said trade frictions between the United States and China, along with weak domestic demand were responsible for the decline.

The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI), a private survey, fell to 49.7 in December from 50.2 in November. Analysts were looking for the PMI to come in at 50.1 in December.

This bearish report on top of the official manufacturing PMI released on Monday reflects the damage inflicted by the ongoing trade war between the two economic powerhouses.

The official data showed a slowdown in activity for the month of December as the sector contracted for the first time in more than two years, dropping below the critical 50 level. Both reports strongly suggest that the Chinese economy may come under greater pressure in early 2019.

Forecast

Gold prices traded higher earlier in the session in reaction to stock market weakness which fueled flight-to-safety buying of U.S. Treasurys. Lower Treasury yields helped make the dollar a less-desirable asset. This drove investors into dollar-denominated gold. This is the way the market is supposed to work.

However, we are seeing evidence of safe-haven buying of the U.S. Dollar which could put a lid on gold prices. Volatility in the Euro is pushing the dollar index higher when could weigh on gold prices throughout the session.

It’s going to be difficult to support gold prices even with weaker stock prices and signs of a weakening economy if the U.S. Dollar strengthens on safe-haven buying. So be careful buying strength.