Price of Gold – Fundamental Forecast, Week of March 20, 2017

Gold finished higher last week mostly in response to a steep drop in the U.S. Dollar to a five-week low. The precious metal posted a solid gain as the dollar plunged after the U.S. Federal Reserve disappointed investors who had hoped for a more hawkish tone regarding the frequency and the number of interest rate hikes this year.

April Comex Gold futures finished the week at $1230.20, up $28.80 or +2.40%.

Also supporting gold is Trump’s failure to deliver his promised tax cuts and regulatory reform. Finally, investors were looking ahead to the Group of 20 finance leaders’ meeting in Germany this weekend. Experts say the Trump administration may try to pursue protectionist policies which could increase demand for gold as a safe haven investment.

For the second time in three months, the U.S. Federal Reserve hiked its benchmark interest rate a quarter point amid rising confidence that the economy is poised for more robust growth.

The widely expected 25 basis point increase took the overnight funds rate to a target range of 0.75 percent to 1 percent and set the Fed on a path of regular hikes ahead.

The news of the rate hike surprisingly drove U.S. government bond yields lower, making the U.S. Dollar a less desirable investment, but increasing demand for gold. The financial markets were anticipating a much more hawkish tone from the Fed.

The reaction by gold investors showed that some had feared that the monetary policy statement and accompanying economic projections would point to a more hawkish Fed, with a faster pace of rate hikes ahead. However, the actual economic projections for where rates will be this year and in the future changed very little from the last meeting. Investors had priced in the possibility of four rate hikes in 2017. The projections, however, said the Fed would likely raise rates three times, unchanged from its December 2016 forecast.

Forecast

Gold finished the week with strong technical momentum so we could see a continuation of the rally early in the week. A lot will depend on what happens at the G20 meeting over the week-end.

With the Fed announcements old news by Friday, investors ended the week monitoring the Group of 20 finance ministers meeting in Germany. One key topic is the possibility of a currency war breaking out because of the Trump administration and its accusations that several major countries are currency manipulators.

In breaking news, financial leaders of the world’s biggest economies dropped a pledge to keep global trade free and open, acquiescing to an increasingly protectionist United States after a two-day meeting failed to yield a compromise.

The news from the G20 meeting puts the gold rally in jeopardy because it sounds like everything went the U.S. way which could support the dollar. If the dollar rises sharply on the news then gold could plunge on the opening.