Price of Gold – Fundamental Forecast, Week of March 13, 2017

Gold prices broke sharply last week, pressured by rising U.S. Treasury yields and a stronger U.S. Dollar. The catalysts behind the price action were expectations of a Fed rate hike at its next meeting on March 14 – 15 and the increasing chances of more frequent rate hikes throughout the year.

April Comex Gold futures finished the week at $1201.40, down $25.10 or -2.05%.

The selling was strong enough early in the week to drive gold prices through the psychological $1200.00 level. Sellers were reacting to the over than 90 percent probability of a March rate hike and the over 50 percent chance for rate hikes every quarter this year.

Sellers were counting on Friday’s U.S. Non-Farm Payrolls report for February to set the tone for the year since the March rate hike is essentially a done deal. Gold reached its low for the week and rallied on Friday after the NFP report delivered mixed results, casting doubts on more frequent rate hikes from the Fed.

Forecast

The direction of gold prices this week will be determined by U.S. Treasury yields and the U.S. Dollar. Yields rose on Friday and the dollar plunged after the release of the NFP report.

The Fed is widely expected to raise interest rates by 25 basis points after its 2-day meeting on March 14 -15. This news has already been priced into the market. The key to the direction of gold between now and the June meeting will be the Fed’s monetary policy statement.

Traders are going to want to know the Fed’s opinion on future rate hikes since last week’s NFP report showed weaker-than-expected growth in average hourly earnings.

Other key reports include U.S. Producer and Consumer inflation. The PPI is expected to come in at 0.1%, below the previous 0.6%. The CPI is expected to come in unchanged at 0.0%, down from 0.6%. Core CPI is estimated at 0.2%, down from 0.3%.

Retail Sales are also expected to ease to 0.2% from 0.4%. After the Fed announcement on March 15, traders will get the opportunity to react to the latest Building Permits report on March 16. It is expected to come in at 1.26M, slightly below 1.29M. The Philly Fed Manufacturing Index is expected to come in at 30.2, after posting a blow-out 43.3 gain last month. Finally, Preliminary University Consumer Sentiment is expected to rise slightly to 97.1.

Look for the Fed to raise its benchmark rate by 25 basis points, but issue concerns over the possibility of slack in the labor department. Even those the Fed will hike rates, this news has already been priced into the market. Since there are some concerns over future rate hikes, gold short-sellers are likely to use this as a reason to book profits, following the two week decline. Look for firmer gold prices this week.