Gold Fundamental Forecast – January 16, 2017

Gold prices eased on Friday after touching a seven-week high the day before. Investors took profits and squared positions ahead of the week-end, but also reacted to strong U.S. economic data.

Strong retail sales data and better-than-expected producer price data helped drive U.S. Treasury bond yields higher, helping to underpin the dollar. The stronger dollar led to decreased demand for dollar-denominated gold by foreign investors.

The strong economic data reinforced the prospect of the U.S. Federal Reserve raising rates this year, perhaps sooner than previously expected. If you recall, the Fed said at its December meeting that it projects as many as three rate hikes in 2017.

February Comex Gold closed at $1196.20, down $3.60 or -0.30%.

Forecast

Monday is a Federal holiday in the U.S. so the price action could be limited in gold. There are no major U.S. economic reports and the Presidential inauguration is Friday so we could see limited price action most of the week.

After last week’s dismal press conference, I expect Trump to come out firing during his inauguration speech. The odds are very strong that he will not pass up this opportunity to reveal details of his plans for the U.S. economy.

I’m not sure gold investors are going to be holding major positions going into the inauguration so we could see prices drift lower all week. Long gold investors could get hit by steep losses on Friday if Trump comes out taking about tax cuts for corporations, for example. This would lead to higher equity valuations that would divert funds away from bullion.

Last week, business journalists wrote that “the markets were disappointed in Trump for failing to talk about his economic policy plans.” So I have to think that if he does mention specific plans for fiscal spending, tax cuts and relaxed regulations, U.S. Treasurys and stocks would strengthen, pulling up the dollar and pressuring gold.