Price of Gold – Fundamental Forecast, April 21, 2017

June Comex Gold futures traded marginally higher on Thursday and inside the previous day’s wide range. The market seems to be repeating this pattern early Friday.

Given the increased demand for higher risk assets and the resiliency shown by the gold market, it looks as if gold investors are being primarily driven by geopolitical events rather than economic data. Gold was even able to post a small gain after the U.S. Dollar recovered from earlier losses.

On Thursday, gold traders essentially ignored a huge rise in U.S. equity markets that was fueled by positive comments from Treasury Secretary Steven Mnuchin, who said the Trump administration was close to “major tax reform”. In also added that the White House will unveil its plan “very soon”.

Gold traders reacted to Mnuchin’s comment as if it was old news. And to some it was old news since previously, he said a tax reform package would be passed by August.

Gold investors also ignored lower U.S. government debt prices which means higher yields. While this news may have supported the U.S. Dollar, it had almost no impact on gold.

Additionally, gold investors didn’t flinch after Dallas Federal Reserve President Robert Kaplan said on Thursday that two more interest rate hikes this year remains possible but that the U.S. central bank has the flexibility to wait and see how the economy unfolds.

“Three rate increases this year…is still a good baseline. If the economy develops a little more slowly, then we can do less that that if the economy is a little stronger, we can do more than that,” Kaplan said in an interview with Bloomberg TV.

Instead of reacting to the traditional fundamentals on Thursday, gold investors decided to focus on the upcoming French presidential election that is scheduled to take place on Sunday, April 23.

Uncertainty surrounding the election has grown this past month after far-left candidate Jean-Luc Melenchon’s surprising surge in the election polls. According to French pollster Ifop, Melenchon was just five percentage points behind the front-runner, centrist Emmanuel Macron as of Wednesday.

Forecast

Barring any surprises over geopolitical events in North Korea, for example, tensions surrounding the upcoming French elections should continue to underpin prices on Friday. I don’t expect investors to make any major position adjustments in gold on Friday. Most investors are likely to be sitting on their hands while watching the markets rather than trading the markets.

This close to Sunday’s election, there is still no clarity so investors are likely to be more reactive to the results on Sunday and Monday.