Price of Gold Fundamental Daily Forecast – Short-Covering Rally Relieving Oversold Conditions

Gold prices spiked higher on Monday, drawing support from geopolitical tensions over North Korea and a weaker U.S. Dollar. However, gains were limited by expectations of another rate hike by the U.S. Federal Reserve later in the year.

December Comex Gold futures continue to recover early Tuesday. At 0728 GMT, the market is trading $1289.40, up $4.40 or +0.36%.

Geopolitical tensions are being fueled by concerns over a possible North Korea missile launch and what U.S. President Trump may do in response to a threat from the rogue nation.

Forecast

Geopolitical tensions are being credited with fueling the initial rally in gold, but short-covering is helping with the follow-through move. The fast turnaround in the market has caught many weak short-sellers by surprise, encouraging them to cover their positions aggressively.

From a technical perspective, the market is simply retracing its recent break from $1317.10 to $1262.80. The upside target zone is $1290.00 to $1296.40.

Traders are facing a major decision on a test of the retracement zone. Since the trend is down, sellers are likely to show up on a test of this zone. In the meantime, aggressive counter-trend buyers are going to try to drive the market through this zone in an effort to mount a challenge of the recent main top at $1317.10 and to make $1262.80 a major bottom.

The main downtrend is being controlled by expectations for another rate hike in December, rising Treasury yields and increased demand for higher risk assets.

I can accept this short-covering rally as being a normal response to technically oversold conditions and another scare from North Korea, however, I don’t think the rally is going to gain enough traction to turn the main trend to up unless there is a steep sell-off in the U.S. stock markets.

There are no major economic reports until Wednesday so the short-covering and aggressive counter-trend buying could continue today. The rally may even get a boost from a speech by Federal Open Market Committee member Neel Kashkari, who has been known to make dovish comments. However, Wednesday’s Fed minutes may be enough to stop the rally if it is read as hawkish.