Gold Fundamental Forecast – May 24, 2016

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Published: May 23, 2016, 10:28 GMT+00:00

Gold gave back early morning gains to trade at 1250.85 down $2 as traders evaluated a rate increase from the FOMC as early as June. Gold was steady on

Gold gave back early morning gains to trade at 1250.85 down $2 as traders evaluated a rate increase from the FOMC as early as June. Gold was steady on Monday as the dollar eased and Asian stocks firmed, with the metal holding near three-week lows on growing expectations the U.S. Federal Reserve will hike interest rates as early as June.

Bullion has been under pressure since the Fed last week released the minutes of its April meeting, which showed officials believe the U.S. economy could be ready for another interest rate increase next month.

Echoing those sentiments, Eric Rosengren, president of the Federal Reserve Bank of Boston said on Friday that conditions for a rate increase are “on the verge of broadly being met”.

Gold is sensitive to interest rates, gains in which raise the opportunity cost of holding non-yielding bullion.

According to New Markets the market is nursing three consecutive days of gold price losses as investors gloomily weigh up what look like markedly increased chances of higher US interest rates ahead.

Capital Economics’ head of commodities Julian Jessop reckons that even the two more interest rate rises he expects this year needn’t stop the gold price rally (the metal is up nearly 19% for the year so far).

“The conventional wisdom, of course, is that Fed tightening is bad for gold, mainly because higher US rates can strengthen the dollar and increase the opportunity cost of holding commodities,” Jessop writes.

Prices have indeed faltered this week in the wake of the hawkish minutes of the last meeting of the rate-setting Federal Open Market Committee. “However, there is surely more to say than this; after all, gold and silver prices actually rallied in the weeks and months after the Fed first raised rates last December.”

Jessop says a couple of factors are in play here. Gold’s initial resilience was the result of safe-haven flows related to fears of a slowdown in the global economy. This was evident as gold prices gained as money ploughed into the front-end of the US yield curve at the start of the year.

FxEmpire provides in-depth analysis for each asset we review. Fundamental analysis is provided in three components. We provide a detailed monthly analysis and forecast at the beginning of each month. Then we provide more up to the data analysis and information in our weekly reports, which covers the current week and are published by Sunday before the new week begins. Daily we share any new events, forecasts or analysis that affect the current day. To achieve a full accurate understanding it is important that you study all of our data and analysis as a whole.

Upcoming Economic Events that you should be monitoring:

Tuesday, May 24, 2016

Cur.	Event	Actual	Forecast	Previous
USD	FOMC Member Harker Speaks
AUD	RBA Governor Stevens Speaks
EUR	ZEW Economic Sentiment		23.4	21.5
EUR	Eurogroup Meetings
USD	New Home Sales (MoM) (Apr)		2.0%	-1.5%
USD	New Home Sales (Apr)		523K	511K