Price of Gold Fundamental Daily Forecast – Trader Reaction to $1200.10 Should Determine Direction Today

Gold finished higher on Wednesday, underpinned by a sharply lower U.S. Dollar and a steep drop in U.S. stocks. Given the size of the sell-off in both markets, one would have expected more from gold. However, investors may have been focused on rapidly rising Treasury yields and expectations of further rate hikes which tend to reduce demand for gold which doesn’t pay a dividend or interest. Once again, the big question for investors is whether gold is an investment or a hedge.

In U.S. economic news, the Labor Department reported that U.S. producer prices rose 0.2 percent in September, in line with expectations, but recovering from a weak performance in August.

Final demand prices had fallen 0.1 percent in August. In the 12 months through September, the producer price index rose 2.6 percent, slightly less than expected.

Forecasts

Early Thursday, gold is trading mixed with spot prices down about 0.2 percent and U.S. Comex gold a little higher. At 0623 GMT, December Comex Gold futures are trading $1196.70, up $3.30 or +0.27%.

The early price action suggests gold traders are a little confused over how to play the current volatility in the stock market.

If investors viewed gold as a safe-haven asset then it would be moving higher. Instead, investors are showing a preference for the highly liquid U.S. Treasury and Japanese Yen markets.

On Wednesday, data on U.S. producer inflation, which rose last month after declining in August, and a revision to wholesale inventory estimates for August, added to a hawkish outlook on interest rates.

On Thursday, investors are bracing for monthly data on Consumer Inflation and weekly unemployment data. Both reports could trigger a volatile reaction in gold.

The CPI is expected to have risen 0.2 percent. The Core CPI is forecast to have risen 0.2 percent. Weekly jobless claims are expected to come in at 207K.

Bullish gold speculators are scratching their heads trying to figure out why the steep drop in risk appetite is having such little effect on prices. Technical factors could be playing a role in determining the direction of the market. Our work suggests the first key level to watch is $1200.10. This is followed by $1203.80.

Upside pressure could build over $1200.10 today if Treasury yields drop and the U.S. Dollar takes another pounding.