Price of Gold – Fundamental Forecast, March 28, 2017

Gold prices tumbled on Tuesday in reaction to positive U.S. economic data and a hawkish comment from a key Fed official. However, the market was able to bounce back into the close due to political concerns in Europe.

June Comex Gold futures closed at $1258.80, unchanged for the session.

Shortly after the regular session opening, gold prices declined after a key U.S. report reinforced rate hike expectations. According to the Conference Board, the U.S. consumer confidence index hit 125.6 in March, beating expectations for a reading of 114 and well above the February level of 116.1. This was its highest level since December 2000.

The U.S. Dollar also rose in reaction to positive comments from U.S. Federal Reserve Vice Chairman Stanley Fischer. He said in an interview that two more increases to U.S. benchmark interest rates this year seemed “about right.” Dollar-denominated gold fell because rising rates tend to make it too expensive for foreign investors, leading to a drop in demand.

Gold prices were supported by political news in Europe. French presidential candidate Francois Fillon suffered a setback when magistrates placed his wife under formal investigation over allegations that he paid her for a fake parliamentary job. If this becomes an issue if it helps increase support for far-right candidate Marine Le Pen.

In other news, investors are preparing for the filing of formal Brexit divorce papers by U.K. Prime Minister Theresa May on Wednesday. There is a lot of uncertainty behind the move to leave the European Union. The process is expected to take years and the uncertainty over the negotiations could help underpin gold prices.

Forecast

Gold traders are going to take their cues from U.S. interest rates and stocks on Wednesday. Higher rates will continue to boost the U.S. Dollar and rising equity prices will encourage money to flow out of safer assets and into risky assets.

The market is also susceptible to violent swings do to the uncertainty over the Brexit filing and the outcome of the French elections.

Stocks could rise further the faster the Trump administration and House Republicans move on from their health care reform defeat and on to tax reform and increased fiscal spending.

FOMC Member Charles Evans is also scheduled to speak. The Federal Reserve Bank of Chicago President could drive interest rates higher and gold prices lower if he continues with his hawkish commentary. Earlier in the week, he said two interest-rate increases may be the right amount of tightening for the U.S. economy this year given uncertainty surrounding the outlook for inflation and government spending.

Look for gold prices to weaken on a move through $1249.50. Watch for an acceleration to the downside if $1243.70 is taken out. This will change the main trend to down according to the daily swing chart.