Gold Fundamental Forecast – January 24, 2017

A lower U.S. Dollar and weaker U.S. equities helped underpin gold futures on Monday, driving the precious metal to a two-month high. Traders were also reacting to Trump’s inauguration speech which centered on protectionism. Gold buyers believe that Trump is trying to regain the country’s competitive advantage in world trade by driving down the Greenback. This could be very supportive for gold prices.

April Comex Gold futures closed at $1218.50, up $10.80 or +0.89%.

Forecast

A number of factors could help gold prices rally this week if buying volume starts to pick up.

Trump’s move to formally withdraw the United States from the Trans-Pacific Partnership trade deal is one of them. The other is the renegotiation of NAFTA, a deal between the U.S., Canada and Mexico. Trump also told manufacturing executives he would impose a hefty border tax on firms that import products after moving American factories overseas.

Gold traders are also watching the activity in the U.K. Not only are they concerned over the repercussions over Brexit, but late Monday it was reported by Reuters that the Bank of England will leave its record-low interest rates and other stimulus measures unchanged at least until 2019, even though it is likely to revive up its 2017 growth predictions again next week.

Gold prices will continue to be influenced by the direction of the U.S. Dollar and equity prices this week. A weaker dollar makes dollar-denominated gold more attractive to foreign investors. Gold is also a good place to park money taken out of the stock market.

All it is going to take is a wave of fresh buying over $1221.80 to trigger another spike to the upside in the April Comex Gold futures contract. This could send the market flying to at least $1235.60.

Traders should note that despite the rally since the Fed raised rates in December 2016, gold has yet to even retrace 50% of the break from the Election Day high at $1343.90 and the December bottom at $1127.20. This price is $1235.60.

The battle ground for the bulls and the bears is $1235.60 to $1261.10. Trader reaction to this zone may set the tone for the rest of the year, but buyers are going to need help from Trump. However, the Fed could crush the rally if it raises rates and if it remains hawkish about two other rate hikes later this year.