Price of Gold Fundamental Daily Forecast – Weak Recovery as Investors Rush into Other Safe-Haven Assets

Gold futures are edging higher on Monday after recovering from earlier weakness. The rebound in prices is being fueled by hedge buyers and a drop in Treasury yields, but gains are likely being capped by a stronger U.S. Dollar. The catalyst behind the selling is a sell-off in the global equity markets on fear of contagion due to financial market turmoil in China.

At 13:14 GMT, December Comex gold futures are trading $1759.10, up $7.70 or +0.44%.

Gold prices hit their lowest level since August 11 early Monday after safe-haven buying spiked the U.S. Dollar higher against a basket of major currencies. The move came as investors were monitoring events in the Asia-Pacific region particularly in China and Hong Kong. Meanwhile, investors were also on edge ahead of this week’s two-day Federal Reserve monetary policy meeting that could offer clues on when the central bank will start tapering its pandemic-era stimulus.

The gold market turned around and began to mount a recovery as global equity markets plunged. Investors began buying sovereign debt for protection, namely, U.S. Treasury notes and bonds. The move drove down Treasury yields, helping to support gold prices. Safe-havens like the Japanese Yen and U.S. Dollar were also in high demand.

What’s Shaking Up the Global Financial Markets?

A number of factors are driving investors out of riskier assets and into the traditional safe-havens – Treasury notes, Japanese Yen and U.S. Dollar. Gold is benefiting from the drop in yields but also from the plunge in the global equity markets.

Stock traders essentially need some place to park their profits so gold is in some ways benefitting from this. Liquidity is a major factor and gold isn’t as liquid as the three other safe-havens. Gold appears to be taking on more of a hedging role today. Traders may be buying gold as a hedge against a further decline in stocks.

The primary cause of the market turmoil on Monday is a steep drop in stocks in Hong Kong with shares of embattled Chinese developer China Evergrande Group to blame for the move. Hong Kong’s Hang Seng Index dropped 3.3% to close at 23,099.14. Shares of China Evergrande Group in the city plummeted 10.24%, after failing as much as 17% earlier.

Daily Forecast

December Comex gold futures are finding support inside a key technical area at $1757.40 to $1738.60.

The sell-off in the stock market and weaker Treasury yields could offer some relief for the beat-up asset which has fallen nearly $100 since September 3. However, we expect the selling to resume once the smoke clears.

In order to have a major rally in gold, the central banks would have to pump more liquidity into the financial markets, but that is not likely unless there is a 5-10% correction in the stock market. Although such a move is on the central bankers’ check list, most are worried about withdrawing stimulus from their economies than putting liquidity back in.