Price of Gold Fundamental Daily Forecast – Hedge Fund Liquidation Makes It Ripe for Short-covering Rally
Gold futures held steady early Monday, hovering slightly above its lowest level since March 10. Rising global yields pressured the precious metal last week with the selling culminating with a huge break on Friday in response to a stronger-than-expected U.S. Non-Farm Payrolls report.
At 0350 GMT, August Comex Gold futures are trading at $1210.40, up $0.70 or +0.05%.
Friday’s jobs report helped boost U.S. Treasury yields as investors gained confidence in the U.S. Federal Reserve’s plan to raise interest rates at least once more in 2017 and to begin trimming its massive balance sheet.
On Friday, the government reported the economy added 222,000 jobs in June, well above the 179,000 estimate. The unemployment rate rose from 4.3% to 4.4%. Employers also increased hours for workers, but wage growth was sluggish.
The weakness in gold indicates that investors believe the U.S. economy is growing at a steady pace, with investment and consumer confidence healthy. Additionally, the financial risks are only moderate, suggesting the economy is strong enough to withstand another rate hike by the Fed, probably in December.
Contrary to belief, gold is more sensitive at this time to rising U.S. Treasury yields rather than the U.S. Dollar. Anyone who tries to trade gold using signals from the U.S. Dollar Index may end up missing the next move down. Rising Treasury yields are pressuring gold because the precious metal doesn’t pay interest.
In other news, hedge funds and money managers in the week to July 3 reduced their net long positions in COMEX gold for a fourth straight week, U.S. Commodity Futures Trading Commission (CFTC) data showed on Friday.
Forecast
Gold traders have to be careful about selling weakness at current price levels. This is because the market is trading inside a key retracement zone formed by its December 2016 bottom and its April 2017 top. It’s also rapidly approaching the March 10 bottom at $1201.40.
Besides trading inside a value area on the charts, the market may also be oversold due to the heavy liquidation by the hedge funds.
Given these factors, gold may be ripe for a short-covering rally for at least a couple of days as investors prepare for testimony from Fed Chair Janet Yellen on Wednesday and Thursday. On Friday, the U.S. will also report on Consumer Inflation.
This article was originally posted on FX Empire
