Price of Gold Fundamental Weekly Forecast – Could Firm as Government Debates Fiscal Stimulus

Gold futures finished higher for the sixth consecutive week, while posting an inside move. This occurred just one week after hitting a new contract high. The inside move chart pattern tends to indicate investor indecision and impending volatility.

I saw a report that gold hit another 8 year high last week. Even with that news I’m not too impressed by that headline. It’s hard to call it a bull market when you’re only getting back the money you invested eight years ago. Talk to me when we hit all-time highs.

Last week, August Comex gold settled at $1810.00, up $8.10 or +0.45%.

I saw another headline that was rewritten by many analysts last week. It said that gold is going up because of safe-haven demand, and that the catalyst behind the rally is the surge in the number of coronavirus cases in the United States.

No one seems to question these headlines. Have you seen the spike in COVID-19 cases in the U.S.? Have you seen gold’s weekly chart pattern? They don’t look very correlated to me.

Other than Treasury bonds, are investors actually buying safe-haven assets? They’re dumping the dollar. They’re holding long positions in stocks and other higher-yielding assets.

Not Much of a Gain Since April’s Big Price Spike

Since spiking to $1789.00 the week-ending April 17, gold futures have gained 1.17% based on last week’s close. Gold’s two-month sideways to lower price action was fueled by fiscal and monetary stimulus. With fiscal stimulus, the government told taxpayers that they had their back. When the Fed announced its rescue package, it nearly guaranteed that it would do whatever it takes to keep the economy afloat.

So why is gold inching higher now? Firstly, the government stimulus (i.e. direct payment to taxpayers, additional unemployment insurance) is old news. The stimulus payment hit the economy months ago and may have helped stabilize the economy at a time when everyone was taking about long recession.

The additional unemployment benefit did its job, but with the resurgence of the coronavirus and the possibility of another round of strict lockdowns and restrictions, the government will be back this week discussing more stimulus measures.

It’s the possibility of additional stimulus that is supporting gold and that’s the news you should be watching this week. Fiscal stimulus is likely to underpin gold, but monetary stimulus will be necessary to drive prices sharply higher.

We think at gold is vulnerable to a near term correction, but bullish over the long-term. A short-term break could be designed to allow longer-term investors to re-enter at more favorable prices. It could also shake the tree a little and take out those weaker longs hoping for a big payday.

The big payday is coming if you’re patience, but not until the Fed re-enters the stimulus game.