Gold Fundamental Forecast – July 26, 2016

Gold dipped almost $7 to trade at 1324.70 as traders moved away from stress as US indices traded at record highs and US data continued to print in the green. On Wednesday, the Federal Reserve policy latest monetary policy statement will be closely-watched for fresh guidance on the pace of interest rate hikes over the next several months and a monetary policy announcement from the Bank of Japan on Friday, amid growing expectations for further stimulus. Expectations for a rate increase in September have grown since the release of strong U.S. home-building data this week, which showed that new home construction rose 4.8% in June from the previous month.

Rising interest rates tend to hurt gold prices, as the metal is a noninterest-bearing asset and so struggles to compete with yield-bearing assets when borrowing costs increase.

The precious metal fell to a three-week low in the past week, as investor concerns over the state of the global economy have abated. Gold prices surged after the U.K. voted to leave the European Union last month, but have since dropped as market jitters eased.

” The global impact of Brexit is quite limited,” said Simona Gambarini, a precious metals analyst at Capital Economics. Analysts also attributed the pullback to investors taking profits on previously bullish bets.

In addition to FOMC, the advanced read on U.S. 2Q GDP on Friday may spur added volatility in gold prices. Consensus estimates are calling for an annualized print of 2.6% q/q, up from just 1.1% q/q with personal consumption expected come in at 4.1%, up from 1.5%. We’ll want to keep a close eye on the core personal consumption expenditure (PCE) -which is the Fed’s preferred gauge on inflation- with estimates calling for a 0.3% decline to 1.7% q/q. With inflation continuing to be the laggard of the Fed’s dual mandate, a weaker-than-expected read could put a near-term floor under gold prices as interest rate expectations are pushed out further.

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Upcoming Economic Events that you should be monitoring:

Tuesday, July 26, 2016

Government Bond Auctions

Date/Time Country Type

Jul 25 11:30 Germany Eur 1.5bn Jul 2017 Bubill

Jul 25 17:20 Italy Announces details of bond auction

Jul 26 11:10 Italy Holds zero-coupon/BTP€i auction

Jul 27 11:30 Germany Eur 1bn 2.5% Aug 2046 Bund

Jul 28 11:10 Italy Holds bond auction