Gold Monthly Forecast – July 2017

Gold prices could not enjoy the party that was conducted by the bulls in the other instruments like the euro, pound and the CAD as well. They took out a huge party against the dollar which saw their prices clearly in an uptrend against the dollar and with so signs of slacking as well. In this scenario, it was a big surprise to see the gold bulls unable to make use of this opportunity to launch their own attack on the dollar and on the contrary, we saw the gold prices fall during the course of the month which puts the uptrend that we have seen in the prices, since the beginning of the year, in serious doubt despite the weakness in the dollar.

Gold Prices Surprise

Over the last few months, we have seen several times that when the dollar becomes strong or weak, the gold prices were the first to react. Whenever the dollar strengthened, we saw the gold prices fall atleast a bit while when the dollar weakened, we saw the gold prices bounce a lot. This was a clear sign that the gold prices were highly receptive to the dollar value and the large bounces on every dollar weakness followed by a weak correction was further evidence that the uptrend in the gold prices was here to stay for quite some time.

For a brief while in June, before the Fed chose to hike the rates, we saw the gold prices make a failed attempt at 1300 when they fell short by just about $4 and so it was clear that it was only a matter of time before the dollar weakened and the gold bulls capitalized and pushed the prices through 1300. But what followed the June rate hike was not something that the traders and investors would have expected.

Gold Refuses to React to the Dollar

The June rate hike from the Fed came along despite the fact that the data from the US in the preceding days had been weak. It seemed as though the Fed had made up its mind to go ahead with the hike, whatever happens, and hence they chose to ignore the incoming data and go ahead with the hike in the hope that the data would get better in the coming months. So, as expected, the dollar went on a short bullish run which pushed the gold prices towards the 1260 and then the prices broke through further to reach the strong support region at 1240 and this is where the things got interested.

The quick fall towards 1240 was met by some buying over here and this led to a bounce back towards the 1260 region towards the third week of the month. This was also the time when the dollar began to weaken across the board due to the policy paralysis in the US as the Trump team failed to push through the healthcare reform bill. This raised doubts on whether they would be able to push through their other plans in the coming months, including the tax cut plan, and this administrative mess was destructive for the dollar and it fell quite hard. But what surprised the gold traders was the fact that the gold prices did not show much of an impact due to this.

We saw the euro, pound and the CAD make a large move against the dollar,both due to the weakness in the dollar and the strength of the currencies themselves, in hawkish stances from their respective central banks, but gold prices barely moved during this period and they in fact fell during the later period of the month. This was a surprise to gold price watchers as they would have expected the gold prices to skyrocket during this period. A part of this could be attributed to the lack of demand for the gold during this period from India, which is one of the main consumers of gold. India is shifting to a new tax regime and the confusion and the uncertainty surrounding its impact has pushed back the buyers and made them wait and see what the impact would be, before they start investing again. The other reason is the hawkish stance from the ECB, BOE and the BOC and signs of policy reversal from them which means that the returns from investments in these would be more than those like gold and silver and this has pushed the investors to pull out the funds from gold and put them into these  currencies in the hopes of better yields.

Gold Likely to Stay Range Bound

Looking ahead to the coming month, we should see some more consolidation and ranging in the gold prices as the investors and the traders come to terms with the changed scenario with respect to the policy reversals in the various central banks and seek to figure out the gainers and losers in such a scenario. This is likely to take a couple of weeks though we believe that, in the long term, gold and prices of other safe assets are only going to rise as they are in a uptrend in the long term. But for the short term, we expect the gold prices to be under pressure with the consolidation and bearish bias dominating in the coming month.