Price of Gold – Fundamental Forecast, March 24, 2017

After a steady opening on Friday, gold prices drifted lower, taking out Thursday’s low. The price action suggests position-squaring and profit-taking are behind the move, mostly in reaction to a firmer U.S. Dollar and investor uncertainty over the upcoming U.S. healthcare plan vote.

At 0726 GMT, June Comex Gold futures are trading at $1246.90, down $3.20 or -0.26%.

Gold posted a two-sided move on Thursday in reaction to a pair of U.S. economic reports. Firstly, weekly unemployment claims jumped to 258,000, exceeding the 240,000 estimate. Secondly, New Home Sales were boosted to 592K, far above the 566K estimate. The previous month was pushed up to 558K.

Fed Chair Janet Yellen delivered a speech early in the session, but she did not talk about monetary policy.

Minneapolis Federal Reserve Bank President Neel Kashkari on Thursday said he would like to see a detailed plan for how and when the Fed will reduce its $4.5 trillion balance sheet as soon as possible.  Kashkari was the lone dissenter against the U.S. central bank’s decision last week to raise interest rates, citing the need to further progress on employment and inflation.

Late Thursday, Dallas Federal Reserve Bank President Robert Kaplan said Thursday that trimming the balance sheet is an appropriate step in the future, and the Fed should communicate its plan for doing so clearly and in advance.

Like Thursday, the main focus for gold investors on Friday will be on U.S. healthcare legislation. As of Thursday’s close, it was not clear whether Trump and the Republican leaders who crafted the bill had enough support to pass it, meaning they now risk defeat in their first attempt at major legislation and may fail to deliver on a key campaign pledge.

Going into Friday’s trading session, investors are going to be working under the premise that if House Republican leaders can’t get enough votes to overturn Obamacare and enact new healthcare legislation, he will leave Obamacare in place and move on to tax reform.

This may cause a volatile reaction in the gold market because this is one scenario that I haven’t seen mentioned in any in depth analysis this week.

The key to the direction of the gold market today will be trader reaction to the major retracement zone at $1241.30 to $1233.10. Holding above the zone will give gold an upside bias, falling below it will indicate increasing selling pressure.

As far as whether Obamacare is repealed today or not, remains a toss-up. All we know at this time is that Trump is willing to move on to tax reform if the vote to repeal Obamacare fails.