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Price of Gold Fundamental Weekly Forecast – Pressured by Rising U.S. Dollar, but North Korea Still Wildcard

By:
James Hyerczyk
Updated: Oct 8, 2017, 22:07 UTC

Gold prices fell last week, primarily driven lower by rising U.S. Treasury yields, a stronger U.S. Dollar and increased demand for higher risk assets.

Gold

Gold prices fell last week, primarily driven lower by rising U.S. Treasury yields, a stronger U.S. Dollar and increased demand for higher risk assets. Prices recovered slightly on Friday as reports of a possible rate hike by North Korea drove investors into safe haven assets.

December Comex Gold futures settled at $1274.90, down $9.90 or -0.77%.

Rising U.S. Treasury yields and increasing odds of a Fed rate hike drove up the U.S. Dollar against a basket of currencies. This drove down foreign demand for dollar-denominated gold. The precious metal also fell victim to below average volume due to a week-long Chinese holiday.

The dollar rose to 1 ½ month high as Treasury yields rose after a strong reading for U.S. manufacturing activity hardened expectations for U.S. interest rates to rise by the year-end. ISM Manufacturing PMI data hit a 13 ½ year high with a read of 60.8, better than the 57.9 forecast. Later in the week, ISM Non-Manufacturing PMI also beat the estimate with a read of 59.8, up from 55.3 last month.

On Friday, a Labor Department report showed nonfarm payrolls fell by 33,000 jobs last month amid a record drop in employment in the leisure and hospitality sector. But the unemployment rate fell to 4.2 percent, the lowest since February 2001. On an annualized basis, average hourly earnings rose to 2.9%. In September they increased 12 cents, or 0.5 percent. The figures for August were revised 0.2 percent.

Gold was also pressured by increased demand for higher risk assets as global equity markets posted record highs.

Comex Gold
Weekly December Comex Gold

Forecast

Gold should feel pressure if U.S. Treasury yields continue to rise. A stronger U.S. Dollar should also put pressure on gold. Rising stock markets are another factor that should keep pressure on gold.

Gold could stabilize and actually move higher if North Korea becomes a threat to the U.S. again. According to reports, the RIA news agency cited a Russian lawmaker’s comments on a North Korea missile test, which the rogue nation believes can reach the U.S. West Coast.

Essentially, we’re bearish long-term because of the tightening Fed monetary policy and the improving economy. We’ll turn bullish over the short-term if North Korea stirs the markets again. The length of any short-covering rally will be determined by the amount of damage, if any, North Korea causes. Of course, an increased U.S. military response to anything the rogue nation does will likely fuel a bigger and longer rally in gold.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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