Price of Gold Fundamental Daily Forecast – Early Bulls Whipsawed by Thin Holiday Trading Volume

Gold futures are trading lower shortly before the regular session opening after giving back its earlier gains. Bullish traders who were sucked into the rally fell victim to the light holiday volume and were forced to sell, triggering a reversal to the downside.

We warned in earlier articles that the market was subject to whipsaw action. We also warned against trying to buy strength under the thin trading conditions. The moral of the story is:  Don’t chase the market when you don’t have volume on your side.

At 11:51 GMT, February Comex gold futures are trading $1878.20, down $5.00 or -0.27%. This is down from a high of $1904.10.

The early rally mimicked last Monday’s trade when the market rose sharply to $1912.00 on the news that Congress had agreed upon a stimulus deal. That sell-off was fueled by reports of a new coronavirus variant in Britain.

Earlier in the session, gold prices rose as much as 1.3% as the U.S. Dollar slipped after U.S. President Donald Trump signed a long-awaited pandemic aid and government spending bill, while liquidity remained low on account of the holiday season.

Underpinning bullion, Trump on Sunday signed into law a $2.3 trillion pandemic aid package, restoring unemployment benefits to millions of Americans and averting a partial federal government shutdown.

Helping to generate some of the downside momentum on gold is the firm U.S. Dollar. The greenback has rebounded from earlier losses to turn higher for the session. The gains across the board with the commodity-linked Australian and New Zealand Dollars turning lower as well as the British Pound and Euro. The Japanese Yen also gave back earlier gains.

Daily Forecast

Due to the thin holiday volume, we can expect more of the same choppy, two-sided trading conditions throughout the session. The major players are on the sidelines and likely to stay there until after the first of the year. So the price action can be easily manipulated by computers and a few rogue traders trying to make a market.

A reversal in the stock market could send investors into the safe-have demand. This would put further pressure on gold prices.

For a look at all of today’s economic events, check out our economic calendar.