Price of Gold Fundamental Daily Forecast – Tentative Buying at 6-Month High Indicates Weakening Momentum

Gold futures hit a six-month high on Friday but the move was a labored event as investors continued to fret over buying strength or waiting for a pullback into a more favorable price zone.

A week ago, buying momentum was the right thing to do in hindsight because at that time traders and analysts could see breakout potential over $1839.00. Of course the release of a U.S. consumer prices report showing inflation at its highest level in 31 years didn’t hurt.

On Friday, December Comex gold settled at $1868.50, up $4.60 or +0.25%.

However, a few days later that U.S. consumer inflation report is already stale news. Additionally, concerns are being raised over a monetary policy move by the Federal Reserve and perhaps a government intervention of some sorts. Both the Federal Reserve and the Federal government could bring enough guns to the table to dampen near-term inflation expectations, putting a lid on gold prices but not necessarily changing the trend to down.

Still the next move in gold will be decided by investor willingness to buy strength or play for a better entry price.

‘Buy Strength or Buy the Dip’ – What’s the Difference in the Two Decisions?

Buying strength will mean investors are going long on an attempted breakout over last week’s high at $1871.40. With this move, they’ll be playing for a minimum surge into $1919.10 to $1922.00.

Buying a pullback into support will mean investors like the uptrend and the long-term potential of the market, but just don’t like buying at today’s lofty levels. They want to buy a pullback into prices like the breakout level at $1839.00 or 50% of the rally from $1758.60 to $1871.40, or $1815.00.

Near-Term Catalysts

The near-term catalysts driving the price action will be economic data, Fed speakers and government intervention.

Strong economic data in the U.S. will continue to support the U.S. Dollar and bring the Fed closer to a rate hike at least in theory. Both moves will likely put a cap on gold prices or at least slow down the buying.

Commentary from Fed speakers could also influence prices especially if the majority of policymakers turn hawkish and begin to call for sooner than expected rate hikes.

Finally, some traders are expecting the Federal government to intervene in the crude oil market by releasing supply from the U.S. Strategic Petroleum Reserve (SPR). Depending on how much oil and gasoline is released, this news could drive prices for these commodities lower, pushing down consumer inflation.

Short-Term Outlook

The series of higher-tops and higher-bottoms is the very definition of an uptrend. But in any uptrend, one has to start looking at gains from high to high. In a strong bull market, traders are willing to buy strength in the hopes of selling at higher prices.

After last week’s initial surge to $1870.60, the buying has been tentative. This suggests traders believe the market is overvalued. Unfortunately, the only way we’ll know if investors are buying strength is if gold rallies to $1919.10 – $1922.00. Until then, we’ll just have to wait until it tests $1839.00 or lower.