Price of Gold Fundamental Weekly Forecast – Bulls Looking for Help from China, US Data This Week

In my opinion, the primary driver of the rally is not fear, but increased bets on a Fed rate cut. Gold traders started to anticipate the move by the Fed, but Trump’s move to place a tariff on Mexico probably solidified the rate cut in the eyes of gold speculators.
James Hyerczyk
Comex Gold

It was a long wait, but bullish gold investors finally had the fundamentals working on all cylinders to fuel a strong rally. The move actually started the previous week when aggressive speculative buyers came in at $1274.60 to successfully defend the low of the year at $1273.20.

Several days of consolidation followed as investors watched Treasury yields plunge and stock indexes drop to multi-month lows. Typically, these events are bullish for gold, but gains were being capped by a strong U.S. Dollar Index that was hovering near a two-year high.

The final piece of the bullish puzzle hit on Friday after President Trump vowed to place a tariff on imports from Mexico. The news shook up the financial markets as dire predictions of a recession later in the year crossed traders’ minds. This news coupled with worries over low inflation, a lower than expected Chicago PMI report and a drop in Consumer Sentiment, brought in a wave of buyers as investors increased bets on a central bank rate cut later in the year. The events were bearish for the U.S. Dollar, while increasing foreign demand for dollar-denominated gold.

For the week, August Comex gold settled at $1311.10, up $21.90 or +1.70%.

Weekly Forecast

I like to avoid using the terms “safe-haven buying” or “fear trade” when talking about gold. I think the term is disrespectful to gold players because the precious metal is an investment and subject to the same supply/demand factors as any other investment like stocks. Investors don’t buy gold because they “fear” something. They buy it because they see an opportunity for the metal to appreciate. Like any other asset, the conditions have to be right for the appreciation to start.

Gold traders recognized value two weeks ago when gold hit its low for the year. The market didn’t just turn around and rally either. Buyers took their time and accumulated gold in anticipation of a rally. This is good because the height of any rally is often determined by the length of the support base.

In my opinion, the primary driver of the rally is not fear, but increased bets on a Fed rate cut. Gold traders started to anticipate the move by the Fed, but Trump’s move to place a tariff on Mexico probably solidified the rate cut in the eyes of gold speculators.

With traders betting on a rate hike, they’re going to need support from the economic data to stay the course. In terms of a global economic slowdown, investors will be keying on Sunday’s Caixin Manufacturing PMI report from China. It is forecast at 50.0. Gold prices could jump if the number comes in below 50. In the U.S. on Monday, traders will get the opportunity to react to the ISM Manufacturing PMI. It is expected to come in at 53.0. The closer this number gets to 50.0, the more supportive for gold prices. ISM Non-Manufacturing PMI on Wednesday is expected to come in at 55.6.

The major report is Friday’s U.S. Non-Farm Payrolls report. This report is important because the Fed is holding rates steady due a strong labor market and muted inflation. A bearish report will likely be supportive for gold prices.

We may not see the impact of the new tariffs on China or Mexico until June’s report is released in July, but traders will be looking at the May report for cracks in the labor market.

Gold should continue to push higher if Treasury yields continue to weaken, stocks remain under pressure and the U.S. Dollar declines. Essentially, these factors have to continue to decline or gold prices could be limited. If we’re in the early stages of the next bull market in gold then we’re going to have to put up with a lot of stops and starts as shorts continue to get taken out and buyers come in to buy the dips.

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