Price of Gold Fundamental Daily Forecast – Traders Should Be Eyeing ECB, Draghi Today for Direction

Gold is trading lower and heading toward a one-month low shortly before the regular session opening on Thursday in reaction to a jump in the U.S. Dollar against a basket of currencies. The dollar is being supported by weakness in the Australian and New Zealand Dollars, the Japanese Yen and the Euro. The Aussie is being pressured by increased bets on a rate hike by the Reserve Bank of Australia. Stronger appetite for risk is pressuring the Japanese Yen and position-squaring in the Euro ahead of the European Central Bank’s monetary policy and interest rate decisions later today.

At 0938 GMT, April Comex gold is trading $1284.10, down $6.10 or -0.47%.

Bearish Pressure

The stronger U.S. Dollar is primarily responsible for today’s weakness in gold. Since gold is a dollar-denominated commodity, it tends to weaken when the dollar strengthens due to lower foreign demand.

The U.S. Dollar is trading higher against the Australian Dollar on Thursday after reversing earlier gains that were fueled by mixed employment data. The selling pressure is in reaction to a major bank’s announcement of a mortgage rate hike. The sudden intraday reversal to the downside is also dragging down the New Zealand Dollar against the U.S. Dollar.

The U.S. Dollar is moving higher against the Japanese Yen because of firm demand for risky assets like stocks. Rising Treasury yields will also provide support from the dollar. Furthermore, on Wednesday, the Bank of Japan (BOJ) kept its monetary policy unchanged. The central bank cut its inflation forecasts and warned of growing risks to the economy from trade protectionism and slowing global demand.

Finally, the greenback is also moving higher against the Euro ahead of today’s European Central Bank monetary policy announcement, where it is widely expected to keep policy unchanged. The Euro is also losing ground against the dollar because of low inflation readings in the Euro Zone due to weak economic activity in Germany and France. Furthermore, ECB President Draghi is expected to mention that he expects a longer-lasting slowdown.

Bullish Support

Although it is often mentioned that gold is a safe-haven asset during periods of economic uncertainty, this isn’t always the case because sometimes investors choose the Japanese Yen and Treasury yields for protection. They also choose the U.S. Dollar for protection at times. When rates fall, the dollar often becomes a less-desirable asset. When this occurs, demand for gold tends to increase.

Factors that could drive interest rates and the dollar lower, and gold higher are a global economic slowdown, the government shutdown, and the on-going trade dispute between the United States and China.

Forecast

Watch the direction of the U.S. Dollar today because it seems to be exerting the most pressure on gold. Of particular interest should be the dollar’s relationship with the Euro. A plunge in the EUR/USD should drive gold prices sharply lower. The first target is $1274.50. However, if Draghi comes across as hawkish then look for the Euro to rise. This should trigger an intraday short-covering rally in gold.