Price of Gold Fundamental Daily Forecast – Sell-off Indicates Trade War Concerns May Be Old News

Gold futures finished slightly higher on Wednesday after giving up most of its earlier gains, following a test of a one-week high. The price action reflected the confusion in the Forex markets as to how to play a possible trade war between China and the United States.

June Comex Gold settled at $1340.20, up $2.90 or +0.22%.

Gold traders were also impacted by a volatile two-sided trade in the U.S. stock market. At first, gold was supported by flight-to-safety buying linked to a steep break in stocks in reaction to China’s decision to impose tariffs on U.S. goods. A strong comeback in equities and a higher close encouraged gold traders to take profits and move money back to higher-risk assets.

The U.S. Dollar and U.S. equity markets turned around after Larry Kudlow, Trump’s chief economic adviser, calmed investors.

“Yes, it’s possible,” National Economic Council Director Kudlow told reporters when asked if there was a chance measures meant to punish alleged Chinese trade abuses would not go into effect. The actions could be a tactic to get China to negotiate on trade practices.

“It’s part of the process. I mean, I would take the president seriously on this tariff issue,” he added. “You know, there are carrots and sticks in life, but he is ultimately a free trader. He’s said that to me, he’s said it publicly. So he wants to solve this with the least amount of pain.”

Kudlow also said this of the President, “He wants to solve this with the least amount of pain….this is a growth action. I can’t emphasize that enough.”

Although China’s decision to impose tariffs on 106 U.S. products grabbed the headlines early Wednesday, the U.S. did release several economic reports.

ADP and Moody’s Analytics reported that companies kept up the hiring pace in March, adding 241,000 positions as employment in construction and manufacturing surged. Traders were looking for the report to show that private payrolls grew by 205,000. The March report was also revised higher to 246,000, up from 244,000.

Another report showed growth in non-manufacturing economic activity continued to slow in March, after declining slightly in the prior month.

The Institute of Supply Management’s measure of non-manufacturing firms ticked down to 58.8, slightly lower than the 59 expected by economists. Non-manufacturing economic activity hit 59.5 in February.

Additionally, the Commerce Department said on Tuesday that factory goods orders increased 1.2 percent, nearly erasing January’s revised 1.3 percent decline. Economists were looking for a 1.7 percent rise in February after a previously reported 1.4 percent drop in January.

Finally, Cleveland Fed President Loretta Mester said the U.S. Federal Reserve makes better policy decisions when a more diverse group is at the table helping it avoid “group-think”. Mester did not comment on U.S. monetary policy in prepared remarks on diversity in the economics profession.

Forecast

Gold is trading sharply lower early Thursday in reaction to a stronger U.S. Dollar and rising equity prices. These are the two factors that will control the price action today. Traders are also preparing for Friday’s U.S. jobs report which is expected to be bullish for the U.S. Dollar, given Wednesday’s robust ADP private sector jobs report.

A trade through $1325.40 will change the trend to down on the daily chart and this could trigger a further break with $1312.40 the next major downside target.

In the U.S. on Thursday, investors will get the opportunity to react to the Challenger Job Cuts report, Weekly Unemployment Claims and the U.S. Trade Balance.