Price of Gold Fundamental Daily Forecast – Reaction to $1258.30 to $1269.40 Will Determine Longer-term Direction

Gold is trending higher early Friday and nearing a three-week high, helped by a weaker U.S. Dollar and lingering U.S. political uncertainty.

At 0700 GMT, December Comex Gold is trading at $1253.10, up $1.00 or +0.08%.

A steep rise in the Euro to nearly a two-year high on Thursday sent the U.S. Dollar plunging against a basket of currencies after European Central Bank President Mario Draghi said tapering of its stimulus will be discussed at the central bank’s September meeting.

Gold was also underpinned by heightened political concerns surrounding investigations into President Trump’s campaign ties with Russia.

Forecast

Gold continues to move higher for the ninth session since posting a multi-month low at $1211.10 on July 10. The market is rapidly approaching a key technical retracement area at $1258.30 to $1269.40. Additionally, the last top before a steep decline comes in at $1267.10. This area is key to the longer-term structure of the market.

Traders should look for increased trading activity on a test of $1258.30 to $1269.40. Sellers are going to try to defend the downtrend and buyers are going to try to drive the market through $1267.10 in an effort to turn the main trend to up.

As far as the longer-term outlook is concerned, a sustained move over $1269.40 could trigger the start of a steep rally since the next major upside target is $1305.50.

Rising equity markets and increased demand for higher risk assets could stop the rally. The major stock indexes are hovering around historical highs while U.S. Treasury yields are falling. A strong stock market tends to pressure gold prices because stocks and gold are competing assets and stocks offer a better return.

Falling interest rates tend to weaken the U.S. Dollar, making dollar-denominated gold a more attractive asset because of increased demand from foreign investors.

The best scenario for bullish gold investors will be a break in U.S. equity markets and lower Treasury yields. Gold’s upside could be limited if stocks continue to post new all-time highs and Treasury yields rebound.

The gold rally could stretch to $1258.30 today but this will be the first key test for investors. Overcoming this level will mean buyers are getting more aggressive. A failure at this price will indicate the selling is greater than the buying at current price levels.