Price of Gold Fundamental Daily Forecast – Turkish Effort to Support Lira Not Enough to Stop Dollar Strength, Gold Weakness

Gold futures posted a new low for the year early Monday after safe-haven buying pushed the U.S. Dollar to a 13-month high against a basket of major currencies amid financial turmoil in Turkey.

At 0813 GMT, December Comex gold futures are trading $1211.50, down $7.50 or -0.61%.

Money continued to flow into the dollar as Asian shares fell and U.S. equity futures contracts drifted lower. The dollar was also helped by a weaker Euro which hit a one-year low.

The catalyst behind today’s early price action was the financial crisis in Turkey. As the currency markets opened on Monday, the Turkish Lira plunged to a new record low on worries over President Tayyip Erdogan’s influence over the economy and worsening relations with the United States.

According to reports, Turkey has drafted an economic action plan and will start implementing it today to ease investor concerns, Finance Minister Berat Albayrak said.

At this time, the focus is on geopolitical events and less on economic data and Fed activity.

China’s central bank on Friday said it would maintain its prudent and neutral monetary policy to ensure ample liquidity and keep the Yuan largely unstable, after the currency earlier this month hit a 14-month low versus the dollar amid ongoing Sino-U.S. trade tensions.

In other news, gold sold last week at a discount in India for the first time in six weeks on subdued demand as buyers bet that prices could fall still further after hitting near seven-month lows last week.

Additionally, gold speculators added 22,195 contracts to their net short position in the week to August 7, bringing it to 63,282 contracts, the largest since records became publicly available in 2006, U.S. Commodity Futures Trading Commission data showed.

Forecast

Last week’s moves by gold speculators showed they aren’t afraid to short weakness even at multi-year lows. They could be forced to cover if the U.S. Dollar makes a dramatic top and reversal. However, this is not likely to occur unless a relative calm falls over Turkey.

Gold traders are watching the developments in Turkey especially after the Turkish central bank moved to improve liquidity during the Asia afternoon trade. Among the move announced Monday were a slashing of Lira required reserves held by banks by 250 basis points for all maturities, Reuters said.

Based on the price action by the dollar and gold, it doesn’t look like the Turkish government has done enough to convince traders that it’s making the right moves. And with money managers willing to press gold lower even at multi-year lows, it looks as if the bears will continue to exert their power today.

Even if there is an intraday short-covering rally, it will probably be fueled by technical factors which means gold bears will be waiting to re-short at more favorable price levels if the fundamentals don’t improve.