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Price of Gold Fundamental Daily Forecast – Weakening as Gold Loses Its Appeal as Safe-Haven Asset

By:
James Hyerczyk
Published: Oct 8, 2018, 06:13 UTC

Last week, gold futures held steady despite soaring U.S. Treasury yields and a spike higher by the U.S. Dollar. This is because both moves put pressure on emerging market currencies which changed gold into a safe-haven asset.

Comex Gold

Gold futures are under pressure early Monday in reaction to a stronger U.S. Dollar. The dollar is being underpinned by a move by the People’s Bank of China designed to prop up its economy. U.S. banks and the Treasury are closed so the focus will be on geopolitical events today rather than government reports and Treasury yields.

At 0539 GMT, December Comex Gold futures are trading $1200.00, down $5.60 or -0.46%.

Last week, gold futures held steady despite soaring U.S. Treasury yields and a spike higher by the U.S. Dollar. This is because both moves put pressure on emerging market currencies which changed gold into a safe-haven asset.

To recap last week’s key events, strong U.S. economic data and a hawkish U.S. Federal Reserve Chairman Jerome Powell helped drive the benchmark U.S. 10-year Treasury yield to a seven-year high. Rising interest rates helped make the U.S. Dollar a more attractive investment. A rising dollar tends to reduce foreign demand for dollar-denominated gold, driving prices lower.

However, this would be the case if gold were being viewed as an investment. Last week, investors viewed gold as a safe-haven asset, helping to underpin the market.

In other news, speculators reduced their net short position in COMEX gold by 4,186 contracts to 73,128 in the week to October 2.

Forecast

Over the week-end, the European Commission told Italy it is concerned at its budget deficit plans for the next three years since they breach what the EU asked the country to do in July, but Rome insisted on Saturday it would “not retreat” from its spending plans.

This news is weighing on the Euro which is helping underpin the dollar, leading to renewed pressure on gold prices.

However, the major news helping the dollar and pushing gold lower is from China. On Sunday, the People’s Bank of China announced a steep cut in the level of cash that banks must hold as reserves, stepping up moves to lower financing costs and spur growth amid concerns over the economic drag from an escalating trade dispute with the United States.

The move by the PBoC essentially injected a net 750 billion Yuan ($109 billion) into the financial system. It was also the fourth reserve requirement cut this year.

The early price action indicates that traders are also reacting to the gold market’s position on the daily chart. For a fifth consecutive day, gold is straddling the psychological $1200 level. Trader reaction to this price is likely to determine the direction of the market today. Low volume and volatility could also be having an effect on prices.

A sustained move under $1200.10 will likely trigger a move into $1195.40, while a sustained move over $1205.90 could fuel a retest of $1205.90.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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