Price of Gold Fundamental Daily Forecast – Weak Dollar Driven Rally Likely to Lead to Test of $1365.80

Gold futures popped to their highest level since September 11 early Monday, underpinned by continuing weakness in the U.S. Dollar. The Greenback tumbled to a three-year low earlier today, driving up demand for the dollar-denominated commodity.

At 0853 GMT, February Comex Gold futures are trading $1342.60, up $7.70 or +0.57%.

Last week, gold prices were supported by a number of events. For the most part, investors ignored rising U.S. Treasury yields and instead chose to focus on the weaker U.S. Dollar. The Greenback was under tremendous pressure last week. The relentless selling was driven by a surge in demand for the Japanese Yen and the Euro.

The Yen rallied after the Bank of Japan trimmed some of its bond purchases. Investors reacted as if this signaled the BoJ was moving towards lifting stimulus later this year.

The Euro rallied to its highest level against the U.S. Dollar in three years after the European Central Bank minutes showed policymakers discussed lifting monetary policy stimulus earlier than expected.

In other news, Boston Federal Reserve President Eric Rosengren warned that the recent drop in U.S. unemployment could spark a surge in inflation that, given the Federal Reserve’s current policy framework, could trigger interest-rate hikes that bring on recession.

Hedge funds and money managers raised their net long positions in COMEX gold and silver contracts in the week to January 9, U.S. Commodity Futures Trading Commission (CFTC) data showed on Friday.

The current price action and upside momentum strongly suggests that the gold rally will continue over the near-term until prices reach the September top at $1365.80. The hedge fund buying has been steady so I don’t feel there is any danger of gold becoming overbought.

Gold traders seem to have learned how to deal with the stock market surging to new all-time highs nearly every day and rising Treasury yields, this is a strong indication that the buying is real and being primarily driven by the weaker U.S. Dollar. Look for the rally to continue as long as the dollar remains under pressure.