Price of Gold Fundamental Daily Forecast – Reversing Up on Short-Covering, Position-Squaring Ahead of U.S. Holiday

Gold is trading higher early Tuesday after reversing early session weakness that drove the market into its lowest level since July 11, 2017 and dangerously close to its July 7, 2017 bottom at $1230.70.

At 0800 GMT, August Comex Gold is trading $1246.60, up $4.90 or +0.40%. Early in the session, the market hit a low of $128.80. The current price action suggests profit-taking and short-covering may be taking place since there hasn’t been a major change in the fundamentals.

Technically, the price action suggests a closing price reversal bottom may be forming. This doesn’t mean the trend is getting ready to turn up, but it does indicate that the selling may be greater than the buying at current price levels.

Short-sellers may also be squaring positions ahead of the U.S. bank holiday on July 4 and perhaps the start of an extended week-end.

Fundamentally, a weaker U.S. Dollar Index may be the catalyst behind the counter-trend buying. However, rising Treasury yields and increased demand for risky assets may limit gains.

Longer-term, gold is likely to remain under pressure due to weaker global equity markets and lingering concerns over trade relations between the United States and its major trading partners – China, Canada, Mexico and the European Union – which are likely to continue to drive investors into the safe haven U.S. Dollar.

Additionally, expectations for further rate hikes by the U.S. Federal Reserve because of the strengthening U.S. economy should also continue to weigh on gold prices. Since the precious metal doesn’t pay interest, it has become an undesirable investment during the current monetary tightening period.

In economic news, Tuesday’s data was supportive for the Fed’s quest to raise rates. Final Manufacturing PMI came in at 55.4, higher than the 54.6 estimate. ISM Manufacturing Prices were 76.8, higher than the 74.3 forecast. Construction Spending was up 0.4%, below the 0.5% estimate, however, the previous report was revised lower to 0.9%.

Gold was hit hardest on Monday after the latest ISM Manufacturing PMI survey suggested the U.S. widened its lead over the rest-of-the-world economy during June.

The ISM Manufacturing Index rose to 60.2 for the month of June, up from 58.7 previously, when economists had looked for it to ease back to 58.2.

Forecast

Short-term, gold is probably due for a rally just to alleviate some of the extreme downside pressure. If the reversal chart pattern gains traction, it could wipe out some of the weaker shorts and at the same time trap some traders who decided to sell weakness into a one-year bottom.

Barring profit-taking or an unexpected end to the escalating trade war, gold is likely to eventually succumb to selling pressure. The recent bearish price action also seems to be indicating that U.S. investors are not too concerned about trade wars at this time because the ISM Manufacturing Index’s performance in June indicates the strength in the domestic economy is more than offsetting any increased uncertainty on trade policy.

In the U.S. on Wednesday, investors will get the opportunity to react to the latest data on Factory Orders (0.1% versus -0.8%). This may reveal concerns, if any, over trade wars. IBD/TIPP Economic Optimism (54.2 versus 53.9) and Total Vehicle Sales (17.0M versus 17.9M).

All of these reports could reveal some insight on how industry and consumers feel about the impact of the tariffs.