Price of Gold Fundamental Weekly Forecast – Conditions May Be Right for Counter-Trend Rally

Despite closing lower last week for the third consecutive time and taking out the June 5, 2020 bottom at $1704.60, the last weekly main bottom before the March 2020 main bottom at 1424.20 that started last year’s rally, there was a subtle sign that gold may have reached a short-term bottom. Before you get too excited, however, the market still has a lot of work to do on the upside before we’ll acknowledge the return of the bull.

Last week, April gold futures settled at $1698.50, down $30.30 or -1.75%.

Unlike last year when central banks and governments were implementing massive amounts of monetary and fiscal stimulus, respectively, and the Fed was flooding the world with U.S. Dollars to provide liquidity at the start of the pandemic, any rally at this time is likely to be more complicated because a rise in global bond yields is indicating the central banks may be moving closer to tightening.

Conditions May Be Ripe for Short-Term Counter-Trend Rally

Nonetheless, there was a subtle move on Friday, that indicated to me that the buying may be greater than the selling at current price levels and perhaps, conditions were ripe for a short-term counter-trend rally.

Gold futures finished slightly lower on Friday after clawing back earlier losses. Despite reports in the press and from some lazy analysts, the market did not make its low of the session following the release of the stronger-than-expected U.S. Non-Farm Payrolls report.

During the pre-market session, gold futures hit a low of $1683.00. Shortly after the release of the report, gold plunged to $1683.80. This is significant because it represents a potentially bullish divergence from U.S. Treasury yields which touched a new high for the year after the jobs data was released.

Although gold futures closed lower for the session on Friday, it actually closed higher than it was trading immediately before the release of the robust jobs report. In my opinion, this was an important event that could translate into higher prices this upcoming week.

Weekly Forecast

Fundamentally, the direction of the gold market will be determined by the movement in U.S. Treasury yields.

Higher yields should support the U.S. Dollar. A stronger U.S. Dollar should reduce foreign demand for dollar-denominated gold.

The dollar is likely to weaken if bond yields fall, driving up demand for gold.

Technically, the key level to watch is $1711.70. This long-term Fibonacci level is controlling the near-term direction of the gold market.

With Powell’s comments out of the way as well as the jobs report, we don’t expect to see any major developments in the market until the Fed’s monetary policy decisions are released on March 17. This creates the possibility of a counter-trend rally this week, driven by profit-taking and short-covering. It all depends, however, on what yields do.