Price of Gold Fundamental Daily Forecast – Strong Support Base Could Drive Prices Through $1315.60

We’ve said for weeks that it seemed a little dangerous to short a quiet market and gold was about as quiet as they come. Facing rising Treasury yields, expectations for further rate hikes, increased demand for risky assets and an easing of geopolitical tensions, gold held up surprisingly well.
James Hyerczyk
Comex Gold
Comex Gold

Gold prices are trading higher early Thursday, shortly before the release of the latest interest rate decision and monetary policy statement from the European Central Bank. The ECB is widely expected to leave interest rates unchanged, but some investors believe it may reveal its timetable for its exit from quantitative easing. Other investors think it may be too early to taper stimulus given the recent turmoil in Italy and recent weaker-than expected Euro Zone economic data.

At 0915 GMT, August Comex Gold is trading $1306.50, up $5.20 or +0.40%.

Gold prices initially fell after the Fed raised rates, but prices rebounded to close higher as the U.S. Dollar weakened ahead of Thursday’s European Central Bank monetary policy statement. A mixed performance in the U.S. Treasury markets also contributed to the late session surge.

In other news, according to the U.S. Labor Department, producer prices increased more than expected in May, producing the biggest annual gain in nearly 6 ½ years, but underlying producer inflation remained moderate.

The Producer Price Index for final demand rose 0.5 percent last month, helped by a surge in gasoline prices and continued gains in the cost of services. In the 12 months through May, the PPI increased 3.1 percent, the largest advance since January 2012. Economists were looking for a 0.3 percent gain.

Core PPI rose 0.3% versus a forecast of 0.2%.

Forecast

The price action in gold early Thursday suggests yesterday’s decision by the Fed to raise rates and indicate two more rate hikes later this year may have been a “sell the rumor, buy the fact” situation.

We’ve said for weeks that it seemed a little dangerous to short a quiet market and gold was about as quiet as they come. Facing rising Treasury yields, expectations for further rate hikes, increased demand for risky assets and an easing of geopolitical tensions, gold held up surprisingly well.

Additionally, according to government trading data, long trader positions had hit lows not seen in a while. Buyers continued to come in to support the market, however, helping to build an almost month-long support area. Now their patience may be paying off as gold is beginning to approach the upper level of its month-long range.

There are plenty of higher bottoms in the market to suggest that buyers were coming in on the dips. That usually indicates professional buyers. They are hoping for enough speculative buyers to show up and drive this market through the major resistance at $1315.60. If they can do this then look for the rally to possibly extend into at least $1332.40 over the near-term.

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