Price of Gold Fundamental Daily Forecast – Underpinned by Weaker Dollar, but Capped by Fed Uncertainty
Gold futures are trading marginally higher on Monday as investors respond to a slightly weaker U.S. Dollar. Volume is low, however, as many major players are taking to the sidelines ahead of the start of the Fed’s two-day meeting which begins on Tuesday. Helping to pressure the U.S. Dollar, and increase demand for dollar-denominated gold is another dip in U.S. Treasury yields.
At 09:43 GMT, April Comex gold is trading $1304.80, up $1.90 or +0.15%.
Gold is facing headwinds, however, due to increasing demand for higher risk assets. Earlier in the session, the precious metal was under pressure as gains in the stock market outweighed gold’s appeal as an investment. Since gold doesn’t pay a dividend, demand tends to fall when equities rise. Additionally, demand for gold also tends to wane during periods of rising interest rates.
In other news, dealers trimmed their net long position in COMEX gold in the week to March 12 for a third straight week, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday. Additionally, SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, reported another drop in long positions.
This week, gold traders will continue to watch heightened geopolitical uncertainties including Brexit. This week, British Prime Minister Theresa May’s government will be trying to gather support in parliament for her Brexit deal. This will be May’s third attempt to get her exit plan approved. On March 29, the UK is expected to leave the European Union without an exit plan in place. In addition to May’s plan, some Members of Parliament (MP) are trying to get an extension from the EU.
The Fed’s interest rate and monetary policy decisions on Wednesday as well as the Federal Open Market Committee’s new economic projections will probably exert the most influence on gold prices this week.
Gold traders are nervous because the Fed could back away somewhat from its dovish stance and take a more balanced approach toward future rate hikes. This move would be bullish for the dollar and bearish for gold.
However, central bank policymakers could turn slightly more dovish, which would be supportive for gold prices.
Given the two possibilities and in the absence of any major market moving events, look for a rangebound trade today as investors are likely to refrain from taking any major positions ahead of the Fed announcements on Wednesday.