Price of Gold Fundamental Daily Forecast – Are We Seeing Early Signs of Safe-Haven Buying?

Gold futures are trading lower shortly before the regular session opening. However, the market is trying to mount a comeback after touching $1204.30 earlier in the session. The catalyst behind the selling pressure is a spike to the upside by the U.S. Dollar. This move is being fueled by a steep drop in the Euro. Losses are being tempered today by lower Treasury yields and softer demand for higher yielding assets like stocks.

At 1240 GMT, December Comex Gold is trading $1207.70, down $0.90 or -0.07%.

Last week, the hawkish tone of the U.S. Federal Reserve drove gold prices to a one-month low. Earlier today, it was a surge in the U.S. Dollar to more than a 16-month high that pressured the precious metal.

The other force driving the dollar higher is the spike to the downside by the EUR/USD after taking out key support at 1.1301. This move puts the single-currency on track to reach the next major downside target at 1.1185 later this week or early next week.

The Euro is being pressured as investor confidence weakened due to the simmering standoff over Italy’s budget. The European Union rejected Italy’s budget last month and cut its forecast for Italian growth last week.

In other news, hedge funds and money managers cut their net short position in gold by 8,136 contracts to 37,486 contracts, Commodity Futures Trading Commission (CFTC) said on Friday.

Forecast

Despite the longer-term bearish outlook for gold, today’s price action suggests we could be looking at some safe-haven buying, most likely due to the trouble brewing in Italy. However, in order to pull off the reversal to the upside today, Treasury yields must continue to fall and we must see a steep decline in equity markets. Otherwise, expectations of higher U.S. interest rates will continue to weigh on prices.

The daily chart indicates that overcoming $1207.90 could generate some strong short-covering, but the market would have to overtake $1215.20 in order to convince me that the buying is real.