Price of Gold Fundamental Weekly Forecast – Could Trend Higher Until Fed Offers Clear Rate Hike Timetable
Gold futures closed sharply higher last week, closing up 1.58%, surprisingly keeping up with the benchmark S&P 500 Index which closed up 1.63%, while outperforming the Dow and NASDAQ Composite, which gained 1.09% and the 1.35% respectively.
Last week’s rally started at $1760.30 and ended at $1815.50, before the market settled at $1796.30, up $28.00 or +1.58%.
Gold prices slipped at the start of the week after investors took refuge in the dollar due to rising inflationary pressures and as an uptick in U.S. bond yields added to the downbeat mood. However, prices improved into the close, as a decline in the dollar and U.S. bond yields provided some support to the precious metal.
Demand for gold surged on Tuesday with prices rising as much as 1%, as a sluggish dollar lifted bullion’s appeal in the face of increasing inflation expectations, but prices weakened into the close. However, gold was able to rebound on Wednesday, only to have gains capped by rising U.S. Treasury yields.
Gold posted a choppy, two-sided trade on Thursday as a rebound in the U.S. Dollar dampened the metal’s appeal, while investors assessed whether higher inflation would prompt central banks to raise rates sooner than expected.
Finally, gold prices surged for a fourth consecutive session on Friday, and finished higher for a second straight weekly gain. The early rally was fueled by inflationary pressure, but late in the session traders gave back more than half of its gains following hawkishly perceived remarks from Federal Reserve Chairman Jerome Powell.
Did you figure out last week’s theme? It was a no-brainer, textbook move with prices primarily driven higher by a weaker U.S. Dollar and periodic dips in U.S. Treasury yields. And vice-versa during the sell-offs.
However, on Friday, traders were spooked by the big man – Fed Chair Jerome Powell. The Fed Chair spooked traders after gold hit its highest level since early-September when he said the U.S. central bank should start reducing its asset purchases. Up until that moment, traders were just speculating the Fed would start tapering in November. After Powell spoke, however, it looks like tapering is a done deal.
Tapering will be the first step in tightening policy, but in my opinion, traders have already moved on from it and would prefer to know the Fed’s opinion on inflation and the timetable for its first rate hike.
This is because over the long-term, gold’s trajectory is likely to hinge on how fast or how aggressive the central bank would act to contain inflation. We could get this answer after the Fed’s November 2-3 monetary policy meeting, but if central bank policymakers continue to be vague then prices could extend their October gains.
Essentially, gold investors want clarity and conviction from the Fed.