Price of Gold Fundamental Daily Forecast – Weak Dollar Sparking Renewed Buying

Gold futures are trading higher on Monday after failing to follow-through to the downside following Friday’s potentially bearish closing price reversal top. The early price action suggests that Friday’s move was fueled by profit-taking rather than aggressive shorting after prices hit their highest level since June 19. The market may also be garnering support from flat demand for stocks and a slight drop in U.S. Treasury yields.

At 1001 GMT, February Comex gold is trading $1293.10, up $7.40 or +0.58%.

After taking the week-end to digest Friday’s key events including the strong U.S. jobs report and dovish comments from Fed Chair Jerome Powell, gold traders may be realizing that the movement in the U.S. Dollar is the key driver of the price action. And that while Powell’s dovish tone may have driven up demand for risky assets, it also drove down the U.S. Dollar, which makes dollar-denominated gold a more attractive asset.

Perhaps also providing a lift for gold prices was China’s decision to cut its reserve requirement. This type of action tends to drive up demand for commodities because it means more spending

After a series of weaker-than-expected manufacturing reports, which signaled an economy being damaged by the trade dispute, the People’s Bank of China on Friday cut reserve requirements for all banks by 100 basis points. This makes available about $116 billion in funds for new lending. The plan is to provide stimulus for the economy and slow down the impact of U.S. tariffs.

Analysts also said the size of the cut was at the upper end of market expectations, and the net funds released would be the largest amount in the five reserve requirement reductions since January 2018. Analysts are also looking for further stimulus from the PBOC in 2019. One analysts thinks it’s reasonable to expect as many as four 100 bps cuts this year.

Forecast

The early price action indicates gold investors are locked onto the movement in the U.S. Dollar. The dollar index is currently in a position to test its lowest level since early November. If this support area fails as support then gold could easily retest Friday’s high that came in just slightly above the psychological $1300. 00 level.

The dollar is getting drilled today across the board from all major currencies as Forex traders make adjustments in reaction to the possibility that the Fed will refrain from all rate hikes this year. The Australian and New Zealand Dollars are especially strong because of the cut in China’s Reserve Requirement.

Gold has to hold above $1285.70 to sustain its bullish tone. If its takes out $1300.40 then look for $1312.30. If $1285.70 fails then look for a break into $1278.10. Look out to the downside if this price fails as support.