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Price of Gold Fundamental Daily Forecast – Gold Vulnerable to Treasury Yield Volatility

James Hyerczyk

Gold futures are trading higher early Monday. The market opened higher and added to its gains shortly afterward. Bullish traders are trying to recover from the steep drop on Friday near the end of the session which surprised market participants. Some traders attributed the plunge from $1287.70 to $1273.60 to thin U.S. holiday market conditions.

At 0600 GMT, December Comex Gold futures are trading $1277.00, up $2.80 or +0.22%.

Comex Gold

Gold is recovering on Monday despite a firmer U.S. Dollar. Short-term, the market has been trying to establish support over a key technical area at $1268.90 after forming a pair of bottoms at $1263.80 and $1262.80 over the past two months.

A rally could gain traction if buyers can sustain a rally over a technical level at $1286.80. Trigger points for breakouts to the upside are last week’s high at $1289.50 and the October 20 main top at $1292.90.

Gold will be supported this week if U.S. Treasury yields continue to fall, the U.S. Dollar weakens and investors start to shed risky assets.

The key issue today will be the possible delay in U.S. tax reform. This is important because at this time, investors are pricing in possibly three Fed rate hikes in 2018. If the implementation of several key issue in tax reform are delayed into 2019 then this may force the Fed to limit the number of rate hikes. It will also have to lower its economic growth projections.

In other tax related news, the head of the House of Representatives’ tax writing committee said on Sunday he would not accept elimination of a federal deduction for state and local taxes, opposing a proposal from Senate Republicans that would hike taxes for some middle class Americans.

The inability to reach a compromise could further delay tax reform from becoming law and this could be bearish for the dollar and bullish for gold.

Later in the week, investors will be watching for a reaction in the Treasury markets and by the U.S. Dollar to current reports on producer and consumer inflation.

In other news, Philadelphia Fed President Patrick Harker said on Monday in Tokyo that he expects to back an interest rate hike next month and expects the central bank in the United States to raise rates three times next year as long as inflation remains on track.

There are no major reports early in the session, but late in the day at 1900 GMT, the government will release the Federal Budget Balance. It is expected to come in at -58.2 Billion.

Without any major reports until later in the week, the primary focus today will remain on tax reform, and the direction of Treasury yields, the dollar and the stock market.

This article was originally posted on FX Empire