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Price of Gold Fundamental Weekly Forecast – Catalysts for Big Rally: Sustained Move Over $1252, Weak Dollar

By:
James Hyerczyk
Published: Dec 9, 2018, 07:15 UTC

The weakening U.S. Dollar is the catalyst behind the strength in the gold market. Driving gold prices lower are the steep drop in Treasury yields and expectations of a more dovish Fed next year.

Gold Bars and Dollar

February Comex gold prices finished higher for the week and in a position to continue the rally this week. Technically, the market changed the main trend to up according to the weekly chart. This could trigger a follow-through to the upside. The weakening U.S. Dollar is the catalyst behind the strength in the gold market. Driving gold prices lower are the steep drop in Treasury yields and expectations of a more dovish Fed next year.

Helping to weaken the dollar and support gold prices last week were a soft U.S. jobs report, dovish Fed member comments and an article in the Wall Street Journal which suggested the Fed may be considering slowing the pace of future rate hikes. Geopolitical events and wild stock market swings also led to bouts of heightened volatility and increased demand for gold.

A weaker-than-expected U.S. nonfarm payrolls report setoff volatile reactions in several markets on Friday amid concerns the U.S. Federal Reserve may have to consider curtailing its plans to raise rates aggressively in 2019. The slow job growth suggests that economic growth may be losing steam.

According to the U.S. Labor Department, Nonfarm Payrolls increased by 155,000 for November while the Unemployment Rate again held at 3.7 percent, its lowest level since 1969. Economists were looking for payroll growth of 198,000 and the jobless rate to remain changed. Average hourly earnings rose last month, but the increase didn’t raise fears about an overheating economy. Average hourly earnings rose at a 3.1 percent pace from a year ago. The monthly earnings gain of 0.2 percent fell short of estimates for a 0.3 percent increase. The average work week edged lower by 0.1 hours to 34.4 hours.

Also underpinning gold was a report in the Wall Street Journal which said the Fed is reportedly debating whether to signal a “wait-and-see” approach after a probable hike to the central bank’s benchmark rate at its December meeting. The WSJ said as part of the Fed’s emerging “data dependent” plan, it could chose to pause the regular quarter-point increases to the federal funds rate and not hike in March.

The dollar was also pressured and gold supported by an inverted Treasury yield curve. This is bearish for the dollar because it tends to point toward potential economic trouble ahead.

Forecast

The fundamentals and the weekly chart pattern are lining up for further upside action. It all depends on what the dollar does in the wake of falling Treasury yields and how fast the dollar loses value. The chart pattern indicates there is room to the upside with $30 to $50 potential before any major resistance is encountered.

 

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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