Price of Gold Fundamental Daily Forecast – Short-Term Weakness Invites Long-Term Bulls to Buy Dips

Gold futures are edging higher on Wednesday after recovering from earlier weakness. Buyers came in on the break as they continued to hold out hope for an eventual fiscal stimulus deal from U.S. policymakers.

Short-term buyers were burned on Tuesday when the market plunged in reaction to a stronger U.S. Dollar, but more patient longer-term investors likely took advantage of the weakness to increase long positions at more favorable price levels.

At 07:04 GMT, December Comex gold is trading $1900.00, up $5.40 or 0.29%.

Stronger US Dollar Capping Gains

The U.S. Dollar rallied and gold prices fell on Tuesday as the COVID-19 pandemic showed no signs of slowing, threatening economic growth and uncertainty over U.S. fiscal stimulus drove investors to seek protection in the greenback.

News that key COVID-19 vaccine trials were paused, along with another stalemate in U.S. stimulus talks, soured appetite for riskier assets while propping up the dollar. The rising dollar then capped foreign demand for the dollar-denominated asset.

Gold Slides Nearly 2% on International Monetary Fund Comments

Gold also fell as investors latched onto a slightly less stark economic report card from the International Monetary Fund (IMF).

The IMF said forecasts for the global economy were “somewhat less dire” as wealthy countries and China rebounded more quickly than expected.

Policymakers’ unprecedented response to the global health crisis has contained risks to the financial system, but a prolonged recession or policy missteps could ignite growing vulnerabilities worldwide, the IMF warned on Tuesday.

The world’s largest multilateral lender said that some banking systems could experience capital shortfalls should the economic downturn in those regions continue, and growing debt burdens in both the private and public sectors could pose future challenges to financial markets.

Given ongoing uncertainty over how quickly the COVID-19 pandemic can be brought under control, the IMF warned that policymakers need to be prepared to continue to provide broad support, and gradually withdraw it only once the pandemic is fully under control.

“As economies reopen, accommodative policies will be essential to ensure that the recovery takes hold and becomes sustainable,” the group wrote in its Global Financial Stability Report ahead of its virtual summit with the World Bank in place of its usual fall in-person gathering.

“Many countries have entered the crisis with elevated preexisting vulnerabilities in some sectors – asset management, nonfinancial firms, and sovereigns – and vulnerabilities are rising,” it added.

Daily Forecast

The IMF report should serve as a guideline for gold investors. Its short-term assessment of the global economy does not paint a bullish picture for gold traders. It basically implies that flooding the financial markets early with stimulus helped spike global economic growth and prevent a disaster. However, in order to sustain the growth, policymakers need to remain accommodative.

The initial surge in monetary and fiscal aid helped spike gold prices higher, but then gold prices retreated as central banks and governments curtailed their stimulus.

If the global economy retreats and threatens recession then more aid will have to be made available. So in conclusion, we see gold prices capped over the short-run, but underpinned by longer-term investors.

For a look at all of today’s economic events, check out our economic calendar.