Price of Gold Fundamental Daily Forecast – Willingness to Buy New Highs Will Determine Strength of Rally

Gold futures are trading higher on Thursday, hovering just below a five-month high struck the previous session. A hot U.S. consumer inflation reading on Wednesday ignited the current breakout through its July highs. Traders are now waiting to see if the rally will continue or if there will be a pullback into a newly established higher support area.

At 13:12 GMT, December Comex gold is trading $1861.10, up $12.80 or +0.69%.

Most analysts saw the breakout coming after the Fed greenlit a rally on November 3 with its dovish outlook on the timing of its first post-pandemic interest rate hike. The momentum created by that news had the market quickly breathing on the July top at $1839.00. My analysis revealed the breakout price, which anyone could have seen on the daily or weekly chart, but it also showed a pretty clean upside target at the June 2021 main tops at $1919.10 and $1922.00.

Nonetheless, the rally stalled at $1870.60 on Wednesday with rising Treasury yields and a stronger U.S. Dollar being blamed for capping the move. Does not reaching the $1919.10 – $1922.00 targets in one move mean I am wrong in my analysis? Not yet, but it does raise an important question. Was the rally fueled by new buying over $1839.00 or a whole bunch of buy stops?

We should know within a few days because gold is going to either continue its smooth rally into $1919.10 – $1922.00 or it’s going to pull back into the breakout price at $1839.00. It’s really that simple. The market is going to either rally the same way it came down back in June with no impediment or its going to test the level that I think fueled yesterday’s solid breakout.

Will Investors Be Willing to Buy Strength?

Don’t get me wrong. There is nothing wrong with the breakout. It helped continue the trend, but if we’re entering a period of a lengthy mini bull market, I’d like to know that investors believe in the move so much that they are willing to buy strength.

Taking out $1870.60 and continuing on to $1919.10 -$1922.00 will indicate they are willing to buy strength. Pulling back to $1839.00 and seeing buyers defend this price with a healthy bid will indicate this rally was much more than just short-covering.

New Buying or Short-Covering?

I’d rather know that something was put into this market (new money buyers) than taken out (short covering) because fresh money will be needed to sustain the rally. I want to know that the rally was more than just a reaction to a U.S. consumer inflation report. I want to know that the market believes that inflation is here for the long-run and not just until the Fed commits to raising rates.

That being said, the bet at this time is for the breakout to continue through $1970.60 and into $1919.10 – $1922.00, or a pullback into $1839.00. How traders play these levels will tell me a lot about the strength of the rally.