Gold Fundamental Analysis – Forecast for the Week of February 27, 2017

After consolidating the early half of the week, gold futures surged to their highest level since November 11 as investors cut the odds of an earlier than expected Fed rate hike as well as reducing the number of rate hikes this year from three down to two. Gold was also supported by growing concerns over the outcome of the French presidential elections.

April Comex gold futures finished the week at $1258.30, up $19.20 or +1.55%.

Gold started to find support on February 22 after the minutes from the Fed’s January 31 to February 1 monetary policy meeting, suggested the central bank could raise rates more aggressively this year, and that the next increase could come “fairly soon.” However, gold investors were looking for stronger language from the Fed and for a clearer signal that the central bank was preparing to tighten monetary policy.

Gold received another boost later in the week by the lack of clarity on how the Trump administration will fulfill its promised tax cuts and infrastructure spending. The odds of a rate hike in March and June deteriorated further later in the week after Treasury Secretary Steven Mnuchin said he wants to see “very significant” tax reform passed before Congress’ August recess.

The U.S. Dollar as well as U.S. equity prices and interest rates had been pushed higher this year after President Trump made repeated pledges for tax reform and regulatory cuts since he took office. Mnuchin’s comments suggest that Trump’s plan is now unclear and could prove to be a tough task as U.S. lawmakers will now be forced to work through a complex agenda in a timely manner to satisfy the Fed. This could pressure U.S. interest rates, making the U.S. Dollar a less-desirable investment.

Forecast

Based on the strong close in gold at the end of the week, April Comex gold futures may have enough upside momentum to continue the rally this week. The chart pattern suggests the key level to watch is $1257.30. A sustained move over this price will indicate the buying is getting stronger with $1288.00 the next target. This is also a trigger point for an acceleration to the upside.

A failure to overcome $1257.30 will signal the presence of sellers. This could signal a temporary end to the rally. However, since the Fed isn’t scheduled to meet until March 15, buyers may have the green light to extend the rally until then.

Investors are also growing concerned about upcoming elections in the Netherlands, France, Germany and Italy.

Money also continues to flow into exchange-traded funds that buy gold. This strong demand is likely to continue this year because of the persistent political uncertainty.

This week’s key reports that could influence U.S. interest rates, the dollar and gold prices are Durable Goods on Monday, Preliminary GDP on Tuesday along with Consumer Confidence. Gold traders don’t get a breather this week with additional reports due on ISM Manufacturing PMI, weekly Unemployment Claims and ISM Non-Manufacturing PMI. The week will end with a speech from Fed Chair Janet Yellen.