Price of Gold Fundamental Daily Forecast – Downside Momentum Could Drive Market into Lowest Level Since July 2017

Gold futures are trading lower early Thursday as investors continue to exit the asset due to expectations of additional rate hikes by the Fed and the hawkish tone emanating from other major central banks. Since gold pays neither a dividend nor interest, it is one of the least desirable assets at this time, especially during a rising interest rate environment.

At 0722 GMT, August Comex Gold futures are trading $1250.90, down $5.20 or -0.41%.

Earlier today, gold took out its December 12 bottom at $1251.90. If the downside pressure continues then the next stop could be the July 7, 2017 bottom at $1230.70.

Liquidity is a major issue at this time. Recent data from the U.S. Commodity Futures Trading Commission showed the number of investors holding long futures contract is at a 2-1/2 year low. Additionally, the CFTC data showed that hedge funds have built the biggest long bet on the U.S. Dollar in a year.

Betting on the dollar is the same as betting on rising interest rates. This means that the hedge funds believe them when they say they will raise rates at least two more time in 2018 and perhaps as many as three times in 2019. Since gold is a dollar-denominated commodity, a stronger dollar tends to limit demand from foreign buyers.

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Forecast

At this time, I think it’s safe to say that the trend in gold is likely to remain down until there is a dramatic event that changes the Fed’s mind about a third or fourth rate hike this year. A steep unexpected drop in the U.S. Dollar and a greater than 10 percent correction in the U.S. stock market could also direct money back into the gold market.

A prolonged trade war, for example, could bring investors into gold if it leads to a weaker global economy. However, any weakness in the global economy has to be dramatic enough to make the Fed less-hawkish as well as the Bank of England, the Bank of Canada and the European Central Bank.

The BOE and BOC have both raised rates since their last cuts. The ECB is first planning to stop stimulus then probably raise rates after July 2019.

The Reserve Bank of Australia is not likely to raise rates until November 2019 or later. And the Reserve Bank of New Zealand suggested earlier today that it may either delay a rate hike or even cut interest rates if it deems necessary.

From today and into the future, I think gold investors are going to have to carefully watch the global economic growth and Fed statements to determine any potential shift in policy. These two factors are probably the biggest influence on gold prices at this time.

In other news, it’s also a major news day in the U.S. with the release of Final GDP figures, Weekly Unemployment Claims and a speech from FOMC Member Raphael Bostic.

The Final GDP report is expected to show 2.2% growth, unchanged from the preliminary report. Weekly Unemployment Claims are expected to come in at 220K. Bostic could move the dollar and gold if he speaks about the impact of a trade war on economic growth and monetary policy. Earlier in the week, he said a trade war could hurt the economy and if it did, the Fed may have to cut an interest rate hike from its forecast.