Price of Gold – Fundamental Forecast, April 19, 2017

June Comex Gold futures rallied to near a five-month high on Tuesday, boosted by a drop in the U.S. Dollar and lower demand for higher-yielding assets. General nervousness over geopolitical tensions also helped provide support.

The U.S. Dollar fell on Tuesday after U.S. Treasury yields reached their lowest levels since early November. The catalyst behind the weakness in the yields was a weaker-than-expected U.S. housing starts report. It showed that housing starts fell 6.8 percent last month, more than the expected 3.9 percent decline.

A steep sell-off in U.S. equity markets also drove investors into the safety of the U.S. Dollar. Stocks fell after investors were shocked to hear that investment banking giant Goldman Sachs had missed its earnings estimate.

Worries over the outcome of the upcoming French presidential elections also underpinned gold prices. Many investors are growing wary ahead of Sunday’s elections, in which populist candidates loom larger than before.

Forecast

Gold prices are likely to remain underpinned over the near-term by rising geopolitical tensions and uncertainties over White House economic policy.

Additionally, prices are likely to remain elevated throughout the entire French presidential election process. Traders are likely to maintain their long positions ahead of elections in Germany and Italy later this year.

Although many investors believe the Fed is on a path towards raising interest rates at least two more times in 2017, Treasury investors appear to be thinking otherwise as evidenced by the weakness in Treasury yields.

Gold should continue to be underpinned if Treasury yields continue to drop. This is because lower yields will make the U.S. Dollar a less-desirable investment. This helps boost foreign demand for dollar-denominated gold.

Gold traders should continue to monitor the action in the stock market. Goldman disappointed early Tuesday. IBM disappointed late Tuesday. The odds are mounting against President Trump fulfilling any of his economic policy promises. It looks as if the stock market is getting ready to roll-over to the downside. If this occurs then gold prices could rally further.

On Wednesday, investors will get the opportunity to react to the latest data from the Fed Beige Book.