Price of Gold Fundamental Weekly Forecast – Dovish Fed Should Should Underpin Prices

Gold futures surged last week to their highest level since June 28 after the U.S. Dollar was hammered by events out of Australia and the Euro Zone. Weaker U.S. Treasury yields also made gold a more attractive investment. Gold was also supported by concerns over the Trump administration’s involvement with the Russians and the election, and the Republican Senate’s inability to pass healthcare reform.

December Comex Gold futures settled at $1261.00, up $26.50 or +2.15%.

The first wave of selling against the Dollar was fueled by a sharp rise in the Australian Dollar. It rose to a multi-year high after the minutes of the July 4 meeting of the Reserve Bank of Australia hinted at a possible sooner-than-expected rate hike.

The second wave of selling against the Dollar was triggered after European Central Bank President Mario Draghi said the central bank would begin discussing tapering its stimulus in September. The Euro rallied to a multi-year high on the news and the ECB said nothing to stop the rise.

A weaker U.S. Dollar tends to lead to increased foreign demand for gold.

U.S. Treasury yields continued to fall last week, giving gold a boost. Yields fell as investors continued to express doubt in the Fed’s ability to raise interest rates later this year.

Finally, officials increased the scope of the investigation regarding the Trump campaign’s involvement with the Russians in influencing last November’s elections. Additionally, Republican senators canceled plans to repeal Obamacare and replace it with their own healthcare plan. The inability to pass this key piece of legislation raises doubts about the Trump administration’s ability to pass tax reform and infrastructure spending bills.

Forecast

The focus this week will shift to the U.S. The key events that are likely to control the direction of the gold market this week will be the U.S. Federal Reserve’s interest rate decision and monetary policy statement on Wednesday, U.S. Durable Goods on Thursday and Advance GDP on Friday.

The Federal Open Market Committee is widely expected to leave interest rates unchanged at<1.25%. However, investors will be looking for clues in its monetary policy statement as to the timing of the next interest rate hike.

A dovish Fed is likely to send gold prices higher. A hawkish Fed will be a surprise, but gold traders may not believe them so I’m not sure how gold will react, but I don’t think there will be a major sell-off.

Core Durable Goods are expected to show a 0.4% increase, up slightly from the previous 0.3%. Advance GDP is expected to come in at 2.5%, up from the previous 1.4%.