Price of Gold Fundamental Daily Forecast – With Rates Rising, Next Major Rally Likely to be Headline Driven

Gold prices spiked to the upside early in the session then retreated from their intraday high enough to turn lower for the session. A weaker U.S. Dollar and a sell-off in the U.S. equity markets were the catalysts behind the early strength. Prices retreated after the dollar recovered. Losses could be limited by another drop in U.S. Treasury yields.

At 0646 GMT, August Comex gold futures are trading $1267.30, down $3.40 or -0.27%.

Gold traders are also watching the price action in the Euro. There are also new concerns over trade issues between the United States and the European Union.

These issues are being fueled by U.S. President Donald Trump’s threat on Friday calling for a 20 percent tariff on all U.S. imports of European Union-assembled cars. A senior European Commission official said the EU will respond to any U.S. move to raise tariffs on cars made in the bloc.

In other news, speculators trimmed their net long positions in COMEX gold to the weakest position in 2-1/2 years in the week to June 19, U.S. Commodity Futures Trading Commission (CFTC) data showed Friday.

Forecast

The early price action suggests that gold investors may be finally responding to geopolitical concerns. However, given the lackluster buying over the last two months, several factors may have to line-up before this market actually rallies. These factors include lower U.S. Treasury yields, weaker demand for higher risk assets and a steep sell-off in the U.S. Dollar which is hovering near an 11-month high.

One item that traders are watching is a report from The Wall Street Journal on Sunday evening. Citing people familiar with the matter, the WSJ said, President Trump plans to bar many Chinese companies from investing in U.S. tech and to block additional technology exports to China.

The two measures are set to be announced by the end of the week, and are intended to counter Beijing’s Made in China 2025 – a Chinese initiative to be a global leader in technology.

I think traders should also be paying close attention to the CFTC data which shows net long positions at the weakest position in 2 ½ years. This could lead to an explosive move in gold if professionals and large speculators decide to take advantage of the situation. However, the buying is not likely to increase until the market hits a key value area since these investors are not likely to chase gold prices higher.

The nearest target at this time is the December 12 bottom at $1251.90. The first major move in gold we could see is a massive short-covering rally. These are usually fueled by unexpected news.

I don’t expect investors to build a position in gold for the long-run because central banks are raising or planning to raise rates, so whatever triggers the rally is likely to be headline driven.