Price of Gold Fundamental Daily Forecast – Rangebound Until Appetite for Risk Changes

Gold futures are trading steady-to-slightly better on Wednesday, shortly before the regular session opening. The market is currently trading inside the $1300.40 to $1278.10 range established on January 4. Trading inside the same major range for eight trading sessions usually indicates investor indecision and impending volatility.

At 1203 GMT, February Comex gold is trading $1209.00, up $0.60 or +0.05%.

From a broader point of view, the market is being supported by the dovish U.S. Federal Reserve. This news is putting pressure on the U.S. Dollar, driving up demand for dollar-denominated gold.

At the same time, the Fed news is also helping to generate demand for higher yielding assets. This is helping to put a lid on gains.

This week, gold is trading sideways-to-lower because of conflicting data from China. On the support side is the weakening Chinese economy. Earlier in the week, China reported weaker-than-expected trade balance data. On the resistance side, Chinese officials have suggested the possibility of additional stimulus.

The Brexit vote in the U.K. House of Commons is having little effect on gold prices. This is likely because the defeat of Prime Minister Theresa May’s exit strategy from the UK had been widely expected.

The partial government shutdown is also having a limited effect on the price action. The shutdown is now the longest ever and has left some 800,000 government employees furloughed or working without pay. However, it doesn’t seem to be rattling investors enough to trigger a volatile reaction to the upside, but maybe just enough to provide support.

Out of China, we’re seeing further signs that Chinese policymakers will roll out additional stimulus measures to support the economy. This is keeping a lid on gold prices and it may be offsetting any concerns about the weakening Chinese economy, creating a stalemate and the rangebound trade.

Weaker-than-expected U.S. Producer Inflation data may also be providing support because it backs the notion that the Fed will be patient when raising rates this year.

Forecast

We’re looking for the sideways trade to continue until we see a clear shift in demand for higher risk assets. If risk is on then gold is likely to be pressured. If risk is off then gold will be supported.

Demand for risk could be driven today by better than expected earnings reports, or by the announcement of additional stimulus by China. The Chinese government is rumored to be considering more stimulus measures, including larger cuts in taxes and fees, amid concerns of a slowdown in the world’s second-largest economy.

Although the initial response to the Brexit news was muted, there could be a delayed response especially since UK officials are looking at a new election, or a new referendum. Volatility could return to the equity or currency markets as the story develops. This could drive investors into safe-haven gold.