Gold Monthly Forecast – September 2017

Gold prices had a very strong month in August and it managed to close the month at its highs as global risks and uncertainties gripped the markets and this led to the migration of funds from the stock markets and other risky assets into the safe havens like gold and silver. Also, the dollar continued to be on the backfoot during the course of the month and this also helped the gold prices to continue to climb further during the month. We now find gold and the dollar at an important cross road which should lead to interesting price action in the upcoming month.

Gold Prices Move Higher

The month began slowly for gold as the data from the US, like the NFP, came in stronger than expected and this helped the dollar to recover. But the underlying bullishness was quite evident and this helped the gold prices to continue to stay buoyant even during periods of dollar strength and it seemed as though it would only be a matter of time before the gold strength shone through. There were ample opportunities for gold to push through as the global risks and uncertainties continued to haunt the markets.

North Korea continued to make full efforts to escalate the tension between itself and the US through its missile tests and during the course of the month of August, they did it twice, both times shaking up the markets. In the first half of the month, it helped the gold prices to move towards the 1280 region as Trump also joined the case with North Korea with his caustic statements. But even after the risk subsided, the gold prices continued to hold on to their buoyant levels which was a clear sign of the bullishness in gold.

Global Risks Help Gold

The second half of the month was dominated by the outcome at the Jackson Hole meeting between the central bank leaders with the speeches from Yellen and Draghi being the center of all attention. But, once again, North Korea dominated the markets as it conducted another round of missile testing, this time very close to the region of Japan which led to another round of tension between North Korea, Japan and the US. Though the case and the threat was handled in a much better manner this time around, the escalation in tension helped to keep the gold prices buoyant.

Then came the speeches from Yellen and Draghi where Yellen refused to touch upon monetary policy, thereby indicating that the Fed is going to keep mum about the dollar weakness and leave the dollar to the mercy of the incoming data and the markets. Draghi also did not refer to the strength of the euro in his speech and this helped the euro to climb up and led to another round of selling in the dollar. This was enough signal for the gold bulls too get to work and this time, they did not take long to break through the 1300 region and carry the price as far as 1326 before a small amount of correction began to enter in the gold market and this allowed the gold prices to settle down.

Gold Prices at the CrossRoads

The gold prices are now in a critical region as the region around 1330 is known to see some strong selling. Also, we are likely to see the US economy continue to show signs of recovery in the incoming data. Though another Fed rate hike is pretty much ruled out for this year, the incoming data from the US has been getting better. Also, the dollar is clearly in an oversold condition and with the traders also returning back from their holidays, it is likely that we might see a change in the trend. But the gold prices are quite dependent on the way that risks pan out in the world and that is something that cannot be easily judged or controlled.

Looking ahead to the month of September, we believe that we could be in for a period of correction. We are beginning to see signs that the central banks of various countries are feeling the pinch of the weak dollar and their currencies being stronger and it is likely that they will do their best to talk up the dollar and talk down their own currencies and this could have an indirect effect on the gold prices. Also the ECB is likely to put a temporary hold on tapering and this could help the European stock markets to recover. When that happens, the funds get diverted out of gold and pushed into the stock markets and this is likely to place the gold prices under pressure in the coming month, as long as the global risks are under control. Weak currencies generally tend to fuel the respective stock markets and we believe that this is likely to lead to a correction in the gold prices in September.