Gold Monthly Forecast – August 2017

Gold prices have staged a smart recovery during the course of the month of June after all seemed lost during the early half of the month. The prices had dipped towards the $1200 region during the first part of the month and there seemed to be nothing going right for the gold bulls and the fundamentals also seemed to be totally against the gold prices. But slowly and surely the prices recovered during the course of the month and now they are trading above the key 1262 region and looks to be heading towards 1280 and beyond as well.

Gold Undergoing Dynamic Change

It was a strange first half of the month as the gold prices weakened but the way it weakened was against all the norms that we have been seeing in the markets over the last couple of years atleast. During that period, we saw the dollar strength hold steady as the full impact of the weak economic data from the US was not known as yet. So, the market continued to believe that it was only a matter of time before the third rate hike for this year comes along from the Fed and this helped to strengthen the dollar and we saw the gold prices weaken as a result.

This is something that is expected as far as gold prices are concerned and are an expected reaction from the gold traders. But what was surprising was the fact that the gold prices did weaken even when the dollar weakened. As the incoming data from the US continued to be weak and the Fed chose to keep mum over the weakening dollar, the dollar took a hit all across the board. While the other instruments did manage to recover against the dollar during this period, it was noticeable to see that the gold prices continued to flounder and they began to make their way towards 1200.

What we saw in the market was a change of dynamics as, for the first time in a couple of years, we saw the ECB beginning to talk about tapering of QE. For the past couple of years, the markets were very much used to the ECB pumping in funds and the euro had also been very weak as a result of that. But now, we saw a change as the data from the Eurozone has been improving considerably over the last couple of months and this had opened the option for tapering for the ECB. This also led to the strengthening of the Euro across the markets.

Gold Breaks Free

What this brought about was that the yields and the bonds across the world began to increase in value. We also saw the BOC hiking rates and BOE looking to do the same and with the rate increase cycle setting in, we saw the gold prices take a hit as the investors began to pull out funds from gold and invested the funds into the better yielding rates and bonds. A combination of these factors put the gold prices under pressure and the way ahead looked very difficult for the bulls.

But from that point on, we saw the gold prices make a smart recovery. The dollar continued to weaken as the Trump team bungled on several of its policy measures and this ensured that the dollar stayed weak till the end of the month. Also, the tapering talk also subsided as the ECB tried to sound as careful as it can which made it clear that any action on tapering would happen only after summer. This helped the prices to recover as the gold prices pushed through 1240 and then 1260 and finally closed the month easily above that and looking bullish for a further upmove.

Gold Forecast

Looking ahead to the coming month, we expect the bullishness to continue in the gold prices for the first half of the month. We do not expect the economic data from the US to improve too much and even if it did, it is likely to take some time for the market to be convinced about it. In this background, the overall picture supports the bullishness in the gold prices which should see it move towards 1280 and beyond during the course of the upcoming month. The technicals also favor this view as the prices have pushed through the critical region of 1262 and look strong to close the month.