Price of Gold Fundamental Daily Forecast – Underpinned by Concerns Over Tax Reform

Gold hit a one-week high early Thursday in reaction to the Fed’s “dovish” outlook for interest rates, but pulled back later in the session when the dollar recovered after the Euro weakened. Gold was also underpinned by a drop in demand for higher yielding assets.

February Comex Gold settled at $1257.10, up $8.50 or +0.68%.

In economic news that may have limited gold’s gains, U.S. retail sales increased more than expected in November, helped by a brisk start to the holiday shopping season. Investors read this as a sign of sustained strength in the economy.

The Commerce Department said on Thursday that retail sales rose 0.8 percent last month. Data for October was revised to show sales gaining 0.5 percent instead of the previously reported 0.2 percent rise. Economists were looking for an increase of 0.3 percent in November.

The Labor Department said initial claims for state unemployment benefits dropped 11,000 to a seasonally adjusted 225,000 for the week-ended December 9. That was the lowest reading since mid-October when claims dropped to 223,000, a level not seen since March 1973.

In other news, Import Prices came in at 0.7%, matching estimates. Flash Manufacturing PMI came in at 55.0, up from 53.9 and better-than-the 54.0 estimate. Flash Services PMI came in below expectations at 52.4. Business Inventories fell 0.1% as expected.

Forecast

The current rally is not likely to change the trend to up in the gold market. All we’re seeing is short-covering and position-adjusting in reaction the Fed’s unchanged interest rate forecast for 2018 and 2019. The rally will last until this process is over.

Gold prices could hold up over the short-run due to other factors including uncertainty over U.S. tax reform, the debt ceiling and government funding, however, eventually the market will be capped by rising U.S. interest rates.

The major U.S. stock indexes closed lower on Thursday after two Republican Senators raised some concerns about the tax bill. The news also helped underpin gold prices.

Friday’s session is going to be driven by the same factors that moved the market on Thursday:  interest rates, the dollar and demand for higher-yielding assets.

Interest rates could be moved by a series of minor economic reports. These include the Empire State Manufacturing Index, Capacity Utilization Rate, Industrial Production and TIC Long-Term Purchases.

However, the biggest influence on gold today should be issues over tax reform because they will affect all three key factors. According to reports, Republican Senator Mike Lee was undecided on whether to support the tax bill, while Senator Marco Rubio currently opposes it.

As long as this uncertainty over tax reform exists, gold is likely to be supported.