Price of Gold – Fundamental Forecast, May 3, 2017

June Comex Gold futures retreated to their lowest level since April 10 on Tuesday, but the market was able to maintain its uptrend by holding above the last main bottom at $1248.20 and a major retracement zone at $1247.70 to $1236.00.

Despite holding support, gold is not likely to shift its momentum to the upside until it can overcome resistance at $1272.80.

Gold prices fell in reaction to rising equities and Treasury yields and a firmer U.S. Dollar against the Japanese Yen. These moves all indicate that greater demand for higher yielding or higher risk assets was behind the selling pressure in gold.

Forecast

We could be looking at renewed volatility today with the release of several economic reports and the Fed’s latest interest rate decision and monetary policy statement.

Early Wednesday, investors will get the opportunity to react to the latest ADP Non-Farm Employment Change report. It is expected to show the private sector of the economy added 178K jobs in April. This will be down from March’s 263K gain.

Final Services PMI is expected to come in at 52.5 and ISM Non-Manufacturing PMI is expected to post a read of 56.1. This is slightly above the previous 55.2 read.

The U.S Federal Reserve is expected to release its latest interest rate decision and monetary policy statement at 1800 GMT.

The Fed is not expected to raise rates at this meeting. However, investors are more interested in whether it mentions the number of rate hikes it expects this year and the timing of those rate hikes.

Going into the meeting investors expect the Fed to say that the weak U.S. growth in the first quarter was temporary and that it should not deter the central bank from its plans to raise interest rates.

Early this year, the Fed forecast two more interest rate hikes for 2017. Currently, market believes the odds are greater than 50 percent that the next hike will come in June.

We’re going to approach the trade the traditional way today. If the Fed is hawkish and the dollar rallies then were likely to see gold prices weaken. Losses could be limited if stocks retreat.

If the Fed is dovish and the dollar weakens then we could see gold price rise, but gains will be limited if the stock market rallies.