Price of Gold Fundamental Daily Forecast – Weaker Dollar, Sharp Break in Stocks Could Trigger Upside Breakout

Gold futures recovered from early session weakness on Wednesday to close marginally higher after the minutes from the U.S. Federal Reserve’s June monetary policy meeting showed a growing split among policymakers on the inflation outlook. Some Fed members including Chair Janet Yellen have been saying that the muted inflation was only temporary, but others seemed to express greater concerns.

The U.S. Dollar retreated from its high after the release of the minutes, helping to boost demand for dollar-denominated gold futures.

Gold traders were also disappointed that the Fed did not reveal any details of its plan to trim its balance sheet.

The safe-haven asset was also underpinned by increasing concerns over North Korea.

Forecast

Breaking news early Thursday suggests the North Korean situation will be the primary market driver today and the reaction to the Fed minutes may have to take a backseat.

According to CNBC, “The United States is prepared to defend itself and its allies using military force against North Korea in order to stop the country’s nuclear weapons program,” the U.S. Ambassador to the United Nations Nikki Haley said on Wednesday.

She added that a global diplomatic action was the preferred solution, but North Korea’s actions were “quickly closing off the possibility of a diplomatic solution.”

There is evidence of some buying in gold, but I expect to see an acceleration to the upside if the stock market sells of sharply. We’ve seen moves into safe haven assets before and none of them have lasted. However, if money does actually leave the stock market for the safety of gold then I expect to see a breakout to the upside.

There is other economic news on Thursday. Traders will get the opportunity to react to the latest ADP employment report, ISM non-manufacturing PMI and initial jobless claims. Comments from San Francisco Fed President John Williams and Fed Board Governor Jerome Powell could also influence the price action.

Gold may be underpinned early by hedge buying. However, strong speculative buying will be needed to drive this beat-up market sharply higher. This is likely to occur if the U.S. Dollar plunges and stocks sell-off sharply in response to an escalation of the situation with North Korea.

August Comex gold is finding support at a former bottom at $1217.80. The major support is the March 10 bottom at $1201.40. The trigger point for a possible $40.00 rally over the near-term is the last main top at $1260.00.