Gold Fundamental Analysis – Forecast for the Week of October 24, 2016

December Comex Gold futures consolidated for a second week inside the major trading range created during the week-ending October 7. The price action suggests investor indecision and impending volatility. However, the higher close suggests investors may be leaning slightly to the upside due to oversold conditions. The futures contract finished the week at $1267.70, up $12.20 or +0.97%.

Weaker U.S. Treasury yields helped underpin gold prices early in the week since they drove the U.S. Dollar lower. Since gold is a dollar-dominated investment, it tends to rally when the dollar increases because of greater foreign investor demand.

Gold also attracted buyers due to pressure on U.S. equity markets and the European Central Bank’s decision to hold interest rates at current levels as well as maintaining the current level of stimulus.

After spiking to $1275.90 on October 20 after sellers came in to stop the rally, prices retreated to finish lower on Friday.

Driving prices lower on Friday was a strong turnaround by the U.S. Dollar. It found strength as investors increased the chances of a Fed rate hike from 65% to 74%. This move was supported by strong U.S. housing data and hawkish commentary from several Fed officials.

Forecast

The tone of the week could be determined on Monday with several FOMC speakers scheduled to talk. They include William Dudley, James Bullard and William Powell. Hawkish speeches supporting a December rate hike could put pressure on gold prices from the get-go if they help to drive U.S. Treasury yields higher.

On Tuesday, the key report that could move the U.S. Dollar is the Conference Board’s Consumer Confidence report. It is expected to come in slightly lower than previously at 101.5, down from 104.1.

U.S. Core Durable Goods come out on Thursday. Traders are looking for a 0.2% read, up from minus 0.2%.

The major report for the week is Friday’s Advance GDP. It is expected to show the economy grew at 2.5%, up from the previous 1.4%.

Look for gold to feel downside pressure if the odds of a Fed rate hike in December continue to increase this week. The Fed speakers on Monday could set a bearish tone early if they are hawkish. At the end of the week, a strong GDP report could crush gold if it shows the economy grew more than expected.