Gold Fundamental Forecast – January 18, 2017

Gold prices rallied into an eight week high on Tuesday as investors continued to lose faith in President-elect Donald Trump’s ability to run a government and put together his economic plans. Trump also made negative comments about the dollar that sent it plunging, making gold a more desirable investment.

February Comex Gold futures closed at $1212.90, up $10.30 or +0.86%.

Gold traders came into the session worried over Brexit and a speech by British Prime Minister Theresa May, outlining the 12 key points she’d like to accomplish during the negotiations with the European Union. While this speech was important, it wasn’t the price driver on Tuesday, but rather it was Trump’s comments to the Wall Street Journal.

Trump was quoted as saying the U.S. can’t compete with China because the stronger dollar “is killing us”.

In other news, San Francisco Federal Reserve Bank President John Williams called for gradual U.S. interest rate hikes over the next few years to keep the economy from overheating and ultimately falling into recession.

Fed Governor Lael Brainard, usually a dove, said the Fed might hike rates more aggressively if deficit spending under Trump produced a quick economic boost.

Forecast

Gold is likely to be supported on Wednesday and into Friday’s inauguration of Trump as President of the United States. If Trump decides to talk about his economic plans in his inauguration speech then stocks, interest rates and the dollar could get bumped higher. This would give gold investors an excuse to book profits.

However, we don’t expect too much of a drop in prices because there will still be lingering concerns over Trump’s ability to run the government and accomplish all of his financial goals. There is already evidence that his tax cut proposals may take longer than expected. Additionally, investors aren’t sure if he has his priorities straight since the Republicans in Congress seem to be more interested in taking down Obamacare.

Gold is expected to continue to be used as a safe haven investment while this political uncertainty exists.

In other news, traders will get the opportunity to react to a speech on monetary policy by Fed Chair Janet Yellen. Additionally, the U.S. is scheduled to release its latest data on consumer inflation. The CPI report is expected to show inflation coming in above 2 percent for the first time in two years.

If the headline reading on the CPI comes in as expected at 0.3 percent on a monthly basis, this year-over-year inflation will rise to 2.1 percent, putting it over 2.0 percent for the first time since the summer of 2014.