Price of Gold Fundamental Weekly Forecast – Underpinned by Weak Dollar, Lower U.S. Interest Rates

Gold prices touched a two-month high on Friday as investors continued to react to the tensions between the United States and North Korea. The weaker U.S. Dollar also led to increased demand for dollar-denominated gold. Also helping to boost gold was an aggressive exit from higher-yielding assets.

December Comex Gold futures settled at $1294.00, up $29.40 or +2.32%.

The U.S. Dollar closed lower against a basket of currencies last week, helping to boost demand for gold by foreign investors. The catalyst for some of the weakness was a report showing U.S. consumer inflation rose less than expected in July. The low inflation reading could encourage the U.S. Federal Reserve to pass on a third rate hike this year and lower rates tend to be supportive for gold.

According to the government, the U.S. Consumer Price Index inched up 0.1 percent last month after coming in unchanged in June. Economists were looking for the CPI to rise 0.2 percent in July.

Combined with Thursday’s weaker-than-expected U.S. Producer Price Index data, there is no clear reason for the Fed to raise rates at its September meeting and the odds of a rate hike in December is now under 50 percent.

The CPI data and flight-to-safety buying helped drive gold higher, but some of the gain was limited after concerns over North Korea eased a little after Russian Foreign Minister Sergei Lavrov said there was a Russian-Chinese plan to defuse tensions between the United States and North Korea.

Forecast

The weak U.S. inflation data should be enough to underpin gold over the near-term. However, the next upside move will be determined by the conflict the U.S. and North Korea. Gold will rally if the situation escalates into a military conflict. Gold will weaken if the situation is diffused by diplomatic efforts.

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