Price of Gold Fundamental Daily Forecast- Short-covering Ahead of ADP report Boosting Prices

Gold touched a seven week low on Tuesday, but managed to claw back some of the loss, finishing only slightly lower. Supporting the market after hitting its intraday low was a rally in the Euro which put some pressure on the U.S. Dollar Index. However, gains were limited by firm U.S. Treasury yields, expectations of higher interest rates and increasing demand for higher risk assets.

December Comex Gold futures settled at $1274.60, down $1.20 or -0.09%.

At the close, the CME’s Fedwatch indicator showed investors were pricing in a 77 percent likelihood of a December rate hike, up from 48 percent on September 19, the day before the Fed’s monetary policy meeting. U.S. and world stocks also rose to new records as they celebrated positive global growth. Gold could continue to fell pressure if this indicator continues to rise.

The U.S. Dollar weakened from its high on Tuesday, but that was only enough to drive gold off its low. The dollar was pressured by a stronger Euro, but it continued to gain on the Japanese Yen. Additionally, U.S. and global stock markets continued to make record highs.

Gold is not likely to have a meaningful rally unless there is a flight-to-safety situation. And that is not likely to happen unless North Korea rears its ugly head. Any rally is likely to be fueled by short-covering related to profit-taking in the dollar, Treasurys or the stock market.

 Forecast

Technically, gold could be setting up for a short-covering rally. It is currently sitting inside a major retracement zone at $1286.80 to $1268.90. On Tuesday, it reached a low of $1271.00, just slightly above the $1268.90 Fibonacci level. If a rally does gain traction then we’re likely to see a move into the major 50% level at $1286.80.

On Wednesday, gold is likely to be influenced by trader reaction to a number of economic reports including ADP Non-Farm Employment Change, Final Services PMI and ISM Non-Manufacturing PMI. Fed Chair Janet Yellen is also scheduled to speak.

The ADP report is often used to predict the outcome of the employment change number in the Non-Farm Payrolls report. It is expected to show the private sector of the economy added 131K jobs in September.

A larger-than-expected number should boost the chances of a rate hike and put pressure on gold. However, we have to assume that this has already been priced into the market.

The ISM Non-Manufacturing PMI report is expected to come in slightly better than the previous report at 55.5. Once again a stronger number could pressure gold.

Finally, investors will be listening to Fed Chair Yellen for clues about monetary policy and the direction of interest rates.