Price of Gold Fundamental Daily Forecast – Powell’s Response to Economic Impact of Virus Could Set Tone

Gold futures continued to ease from last week’s highs on Tuesday, pressured by a strong U.S. Dollar and rising demand for higher risk assets. Adding to the weakness was an apparent slowdown in the rate of coronavirus infections although the death rate continued to rise.

Traders are now saying that the next move in gold is likely to be determined by how quickly the country’s factories could get back to work or how central banks respond to the economic impact of the virus.

At 10:22 GMT, April Comex gold futures are trading $1571.30, down $8.20 or -0.53%.

Strong US Dollar Driving Down Demand for Dollar-Denominated Gold

A stronger U.S. Dollar has been a drag on gold prices as investors expected the U.S. economy to remain resilient to the spread of the coronavirus across the world, with payroll data from last week reinforcing traders’ optimism.

Big Businesses Resumed Work in China

Another factor weighing on gold prices was the restarting of some businesses in China, particularly factories, after the Lunar New Year break and government imposed shutdowns.

Taiwan’s Foxconn, a major contractor in global technology production, received approval to resume production at a plant in China’s north, one person with knowledge of the matter told Reuters.

Carmaker Tesla’s Shanghai factory was due to resume production on Monday, a government official said last week, adding that authorities will provide assistance to the firm.

Daily Forecast

The focus the rest of the session for gold traders will be Federal Reserve Chairman Jerome Powell’s Congressional testimony. Traders will be looking for any remarks on the effect of the virus on the economy and monetary policy.

On Monday, two Federal Reserve policymakers played down the impact on the virus on the domestic economy. Federal Reserve Bank of San Francisco President Mary Daly said that the U.S. economy and policy were in a good place.

Still, the Fed’s reluctance to tighten policy should help to dampen upside potential for U.S. yields and the U.S. Dollar, and that could underpin gold.

Furthermore, with traders expecting the virus contagion to peak in March, growth in China would likely decline to around a 1% annualized pace in the first quarter, before rebounding to 9.3% in the second, according to analysts at JPMorgan.

However, should the contagion not peak until April, growth could turn negative in the first quarter, with a rebound spread over the second and third quarters, the JPMorgan analysts said. This event should be bullish for gold prices.