Price of Gold Fundamental Daily Forecast – Outcome of Senate Tax Vote Could Determine Direction Today
February Comex gold futures are inching higher early Friday, following two days of aggressive selling pressure. The price action suggests end-of-the-week profit-taking and position-squaring may be taking place.
At 0909 GMT, February Comex gold is trading $1279.40, up $2.70 or +0.21%.
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Prices are hovering near a 3 ½ week low, but it’s too early to tell if buyers are trying to establish a support base. Most of the price action suggests short-covering is taking place rather than new aggressive counter-trend buying.
Forecast
Despite the early session strength, gains are still being capped by a surge in U.S. equities and expectations of an interest rate hike by the Federal Reserve later this month.
Traders are focusing on U.S. stocks at this time and preparing for the rate hike so there is not a lot of interest in dollar-denominated gold which pays neither interest nor a dividend to hold. Higher interest rates tend to boost the dollar and push bond yields up, putting pressure on gold prices by increasing the opportunity cost of holding non-yielding bullion.
On Thursday, the Dow Jones Industrial Average and S&P 500 Index surged to new all-time highs. This pressured gold prices. Late Thursday, it was reported that the Republican tax overhaul stalled on a procedural issue as the Senate debated the legislation and adjourned, putting off any votes until Friday morning. It was unclear if a decisive vote on the bill would occur then.
Gold prices could pick up strength today if the tax overhaul delay leads to a sell-off in the equity markets. If the Senate vote moves the tax overhaul plan along then sellers may return to drive gold prices back down again.