Price of Gold Fundamental Weekly Forecast – Approaching Wall of Resistance at $1312.60 to $1324.40

Gold futures finished the week on a high note amid concerns over U.S. inflation. The catalyst behind the rally on Friday was a lower-than-expected U.S. consumer inflation report. The price action indicates investors are worried about inflation’s impact on the pace of U.S. interest rate hikes by the Federal Reserve.

December Comex Gold settled last week at $1304.60, up $29.70 or 2.33%.

According to the Labor Department, the Consumer Price Index jumped 0.5 percent last month after advancing 0.4 percent in August. Traders were looking for a 0.6 percent increase.

However, the more closely followed core rate was unchanged at 1.7% for the fifth month in a row and still below the Fed’s 2% target.

Gold traders said the headline inflation was misleading because it rose largely because hurricanes drove up gas-pump prices. Stripping out the impact of volatile food and energy, Core CPI rose a much smaller 0.1%. Additionally, the recent energy-driven rise in CPI pushed the yearly rate of inflation to 2.2% from 1.9% to match a six-month high.

Throughout the week, gold was supported by a softer U.S. Dollar and geopolitical tensions in Spain and North Korea.

In Spain, the leader of Catalonia’s government called for a reduction in tensions in its standoff with Madrid over a bid in the wealthy northeastern region for independence.

Also last week, Russia and China both called for restraint on North Korea following a Twitter post from U.S. President Trump hinting that military action was on his mind.

Forecast

Despite gold’s strong performance last week, investors still anticipate that gains will be capped over the near-term by expectations of another U.S. interest rate increase. Rising equity prices also pointed to increased demand for higher risk assets. This may also slow the pace of the rally in gold. Stronger earnings could drive stocks higher this week and this may impact investor demand for gold.

Gold traders should note that the current rally in gold has been fueled primarily by short-covering. I don’t think we’ve seen really strong counter-trend buying. This may be because the markets are still pricing in an 87 percent chance of a December rate hike, according to the CME Group’s Fed Watch tool.

Increased tensions over North Korea could spike prices higher next week, but this will also be triggered by a combination of speculative buying and short-covering. I don’t think this rally is going to go very far if these two factors control the price action since gains are likely to be limited by expectations of rising rates and strong demand for higher-yielding assets.

The charts indicate that gold is likely to run into a wall of resistance at $1312.60 to $1324.40. This area could kill the rally over the near-term and should be watched carefully.