Price of Gold Fundamental Weekly Forecast – Could Bottom Between $1780.50 – $1705.20 on Fed Stimulus News

Gold futures plunged last week, putting it on course for its worst month since November 2016, as hopes of a coronavirus vaccine-led economic rebound lured investors into buying riskier assets. The formal start of Joe Biden’s transition to the White house also weighed on the precious metal.

Last week, February Comex gold settled at $1788.10, down $90.10 or -4.80%.

We’ve said for months that gold was being supported by short-term traders reacting to fiscal stimulus from the government and long-term traders honed in on monetary stimulus from the Federal Reserve.

The rally started in March when both fiscal and monetary stimulus was being pumped into the economy. It ended the first week in August about a week after federal unemployment payments ended and continued to struggle throughout the fall when Democrats and Republicans couldn’t come to an agreement on additional fiscal stimulus measures.

Meanwhile, the Federal Reserve’s commitment to monetary stimulus remained constant with pledges to keep interest rates at historically low levels for at least 2 to 3 years.

So essentially, we saw fiscal or short-term stimulus vanish, while monetary or long-term stimulus held steady. The fact that the market is currently testing 50% of its rally from March to August validates this assessment.

In other words, the charts are saying February Comex gold will be fairly priced between the 50% level at $1780.50 and the 61.8% level at $1705.20.

Weekly Forecast

The $1780.50 to $1705.20 area represents value to me so I expect longer-term buyers to recognize this area also. Therefore, I think we’re closer to a bottom than another steep plunge.

The move we saw last week was long liquidation with a little bit of speculative short-selling mixed in. Furthermore, I expect the U.S. Dollar to continue to weaken which will eventually provide support for dollar-denominated gold.

This week’s Fed minutes and testimony from Fed Chairman Jerome Powell could reveal that central bank policymakers are ready to provide more support for the economy. That’s monetary stimulus and we know that it tends to be long-term bullish.

We also suspect that another fiscal stimulus package is coming once President-elect Biden settles into office. Vaccine or not, this current surge in COVID-19 cases is going to delay the economic recovery so sometime during the first quarter, the economy is going to need a fiscal boost.

At this time, start watching for bottoming action inside $1780.50 to $1705.20. This area could become a floor for the market, while fiscal stimulus will be the catalyst that triggers the next rally. The monetary stimulus is likely to come later this month, but the timing of the fiscal stimulus is still an unknown. Therefore, after reaching a bottom, the market is likely to settle into a range.

For a look at all of today’s economic events, check out our economic calendar.