Price of Gold – Fundamental Forecast, Week of March 27, 2017

Gold futures posted a strong gain last week with most of the upside action taking place in one day. Just glancing at the weekly gain and knowing that the Republican plan to repeal Obamacare and enact their own health care plan failed, one could conclude that the two events were related, but this was not the case.

June Comex Gold futures finished the week at $1251.70, up $18.50 or +1.50%.

Several factors helped underpin gold prices last week, concern over the health care vote was just one of them. So just because the Trump administration failed in its first attempt to pass its own health care plan, one can’t assume that this news will be bullish for gold next week.

In my opinion, it’s not the news that gold traders are reacting to, but rather U.S. Treasury yields. So if Treasury yields decline in response to Friday’s news then, yes, I can build a case for firmer gold prices this week.

Additional factors helping to boost gold prices last week include the strong performance from centrist presidential candidate Emmanuel Macron in a French election debate and fading expectations for near-term U.S. interest rates.

Weakness in the U.S. Dollar helped support the market after gold prices traded lower early in the week. Holding above a key technical support area at $1241.40 to $1233.10 also gave gold an upside bias.’

Forecast

The direction of the gold market this week is going to be determined by the direction of U.S. Treasury yields. Falling yields have been supporting gold since the Fed meeting on March 15 and they are going to continue to be supportive this week.

Gold is highly sensitive to rising U.S. interest rates, as these increase the opportunity cost of holding non-yielding bullion while boosting the dollar, in which it is priced.

The first order of business this week will be to determine the direction of Treasury yields. After that, all the other fundamental events will fall into place, including uncertainty over President Trump’s policy direction and concerns over the impact of populist parties in European elections this year.

If stocks break hard because of the defeat of the health care plan then gold may find additional support because investors will move money out of risky assets into the safety of gold.

We know about the events on Friday, but we don’t know how Treasury investors feel about the news because the market was closed when the news came about. What the price action in the Treasurys next week because this will tell us if we are in a “risk-on” or “risk-off” environment.