Gold Fundamental Forecast – February 17, 2017

April Comex Gold futures are under a little pressure early Friday as the U.S. Dollar posts a slight recovery, following yesterday’s steep sell-off.  However, gold is still in a position to close higher for a third straight week as investors continue to react to political uncertainties in the United States and Europe.

Earlier in the week, gold was struggling as Fed Chair Janet Yellen started her testimony before Congress by issuing a hawkish statement. This helped raise the chances for a Fed rate hike in March, boosting U.S. Treasury yields and the U.S. Dollar.

At the end of two days of testimony, however, Yellen sounded a little cautious about the strength of the economy and less-hawkish about a rate hike next month. This helped drive U.S. Treasury yields off their highs, taking down the dollar with them. Consequently, the dollar-denominated gold market benefited from the drop in the Greenback.

In other news, holdings of SPDR Gold, the world’s largest gold-backed exchange-traded fund, have risen 5.6 percent so far this month, the most since June 2016.

In U.S. economic news that may have also had an impact on the direction of the dollar, weekly unemployment claims continued to hover around a 40-year low at 239K. The Philly Fed Manufacturing Index trounced the forecast and previous read with a fresh monthly reading of 43.3.

In the housing sector, building permits rose 1.29 million units, versus a 1.23 million unit estimate. Housing starts also grew by 1.25 million units, versus a 1.23 million unit forecast.

Forecast

Gold is expected to continue to be supported by concerns over U.S. President Donald Trump’s policies, as well as elections in the Netherlands, France and Germany later this year. Gold could see another boost on Friday if the U.S. Dollar weakens. The best scenario for gold bulls will be a drop in the dollar, a decline in U.S. Treasury yields and profit-taking ahead of the week-end in the U.S. equity markets.

Monday is a bank holiday in the U.S. so we could see lower volume in the Treasury and stock markets as well as position-squaring in the Treasury market ahead of the long week-end. Economic reports today include the Conference Board’s Leading Index which is expected to come in at 0.5%.