Price of Gold Fundamental Daily Forecast – Professionals Seem Reluctant to Chase Market Higher

Gold is trading flat to higher on Thursday shortly before the regular session opening, U.S. economic reports and a few Federal Open Market Committee speakers. Despite the volatility in the stock market and the drop in Treasury yields, gold has been pretty subdued this week, reduced to a couple of days of short-covering.

At 11:31 GMT, December Comex gold is trading $1509.10, up $1.10 or +0.07%.

One reason for the relatively tame response by gold traders this week to sudden change in the U.S. economy is the strong U.S. Dollar. The dollar hit a multi-year high early in the week before turning lower for the week. Gold buyers are having trouble rationalizing new long positions with the dollar still in a bullish position.

In order to really rev up their engines, the dollar is going to have to get hit hard and that’s not likely to happen unless the U.S. Federal Reserve decides it needs to cut interest rates more aggressively.

The markets have flipped since Monday with a 75% probability of a rate cut at the end of the month, up from 20% earlier in the week. However, gold traders may need to see more convincing evidence that the U.S. economy is weakening enough to encourage the Fed to slash rates at least two more times before the end of the year.

Daily Forecast

There is a slightly bullish tone developing in the gold market, but so far it’s been all short-covering. Real buyers have been burned the last month chasing the headlines so they are being more careful at this time.

Value is what gold buyers have been looking for so the pullback to $1465.00 earlier in the week may have been attractive enough for some. After all, it represented a little more than 61.8% of the rally from the August 1 bottom at $1412.10 to the September 4 top at $1566.20.

The question is “what is it going to take to encourage the public to chase the market through the recent tops at $1543.30 and $1566.20?”

If they don’t bite on the current headlines then is will signal that the market needs to pullback into support at $1489.10 to $1471.00. Furthermore, it may have to form a support base. This week’s turnaround came after an attempt to drive prices sharply lower. Professionals were short and willing to push the market even lower because the Federal Reserve was expected to hit the pause button on its rate cuts.

Now professionals are facing a dilemma. Wait for a good entry price or flip to the upside on the headlines. This is why I think we’re seeing a mild reaction to the news this week. A steep plunge in the U.S. Dollar could cure this problem for the gold bulls.