Price of Gold Fundamental Daily Forecast – Underpinned by Lower Demand for Risk, Capped by Strong U.S. Dollar

Gold did turn its daily trend to up late last week and continued the move earlier in the week, but prices are now trading below those break out areas. This indicates that the rallies were fueled by short-covering and buy stops rather than aggressive speculative buying.
James Hyerczyk
Comex Gold

Gold prices are trading flat on Friday after failing to follow-through to the downside following the previous session’s steep decline. Today’s mixed performance is being fed by falling Treasury yields, a stronger U.S. Dollar and weak demand for risky assets. Basically, increased demand for safe-haven Treasurys and U.S. Dollar are offsetting renewed concerns over U.S.-China trade relations. This is created an inside trading range, which often suggests investor indecision and impending volatility.

At 11:27 GMT, June Comex gold is trading $1286.10, down $0.10 or -0.01%.

If you study the price action this week, you’ll see that gold hasn’t acted like a “so-called” safe-haven assets. Nor have traded responded to geopolitical headlines. Buying gold in reaction to these types of headlines has proved to be fruitless.

Gold doesn’t seem to be wearing the hat of safe-haven asset at this time. Its price action seems to be driven more by three factors, the direction of U.S. Treasury yields, the U.S. Dollar and stock prices. Traders should continue to monitor these three factors and stay away from trading the headlines. Saying that gold is a safe-haven during times of geopolitical turmoil is old school thinking. Gold is an investment and professionals only buy investments when they see value.

Given this week’s economic data, the U.S. economy is relatively strong so money will flow into the greenback when investors need a place to park funds during times of financial market volatility. Although Treasury yields are under pressure, U.S. interest rates are relatively high when compared to what the other major countries are offering so professional are more willing to chase the yield in Treasurys when they are looking to park funds.

Finally, there seems to be some correlation between falling equity prices and rising gold prices, but only on days of extreme volatility and when professional money managers feel the need to spread their hedges across several asset classes.

Daily Forecast

Gold did turn its daily trend to up late last week and continued the move earlier in the week, but prices are now trading below those break out areas. This indicates that the rallies were fueled by short-covering and buy stops rather than aggressive speculative buying.

Gold is currently testing a short-term value area at $1285.80 to $1281.40. If the uptrend is legitimate, then buyers could come in on a test of this area. But in order to generate a bona fide breakout to the upside, big volume is going to have to come in on the buy side. Furthermore, it would help if the U.S. Dollar weakened along with stocks in order to attract foreign buyers.

The best advice I can offer is to avoid trading the headlines, and instead focus on the direction of yields, the dollar and stocks.

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