Price of Gold Fundamental Weekly Forecast – Direction Dictated by Treasury Yields

Gold prices posted a volatile, two-sided trade last week with the action influenced primarily by plummeting U.S. Treasury yields and a sudden reversal to the downside by the U.S. Dollar. A key decision by the Federal Reserve helped drive prices lower at mid-week, but an announcement from President Trump late in the week, reversed gold to the upside, leading to a higher close for the week.

Last week, December Comex gold settled at $1457.50, up $25.30 or +1.77%.

Stronger Dollar, Weaker Gold

The U.S. Dollar edged higher against a basket of currencies on July 29 and July 30 as traders prepared for the release of the U.S. Federal Reserve’s monetary policy statement and interest rate decision as well as the post-Fed meeting press conference on July 31. The greenback was boosted by a weaker Euro and British Pound. The stronger U.S. Dollar helped put a lid on dollar-denominated gold.

Fed Cuts, Powell Hawkish, Dollar Rises, Gold Weakens

On July 31, gold prices changed trend to down after the Federal Reserve cut interest rates by 25 basis points for the first time since 2008. The drop in gold was fueled by a spike to the upside in the U.S. Dollar Index. The index rose to a two-year peak against the Euro and a two-month high versus the Japanese Yen as U.S. Federal Reserve Chairman Jerome Powell ruled out a lengthy easing cycle after delivering the first rate cut since the financial crisis.

At a press conference after the Fed’s decision, Powell said “it’s not the beginning of a long series of rate cuts.” Following a volatile reaction in the stock and Treasury markets, Powell backtracked a little saying, “I didn’t say it’s just one rate cut.”

Gold Jumps after Trump Crushes Dollar with New Tariff Announcement

The U.S. Dollar Index fell from a two-month high and gold prices reversed to the upside on August 1 after President signaled a potential escalation of trade tensions between the U.S. and China when he announced an additional 10% tariff on $300 billion worth of Chinese imports starting September 1. The news sent Treasury yields plunging to three-year lows as financial market traders almost fully priced in a September rate cut. Weaker yields turned the greenback into an undesirable asset, while driving up demand for non-interest-bearing gold.

Mixed U.S. Jobs Report Weighs Boosts Gold

Compounding the weakness in the U.S. Dollar and pushing gold futures even higher at the end of the week was news of slower U.S. employment growth in July. Nonfarm payrolls increased by 164,000 jobs in July, fewer than the month prior, and wages increased modestly, the Labor Department said. Some traders believe the report increased the case for a Fed rate cut in September.

Weekly Forecast

There are no major U.S. reports this week, but last week’s price action indicates gold traders are going to remain focused on the direction of U.S. Treasury yields, the U.S. Dollar Index and demand for risky assets. Gold is likely to continue to be supported by lower yields because they will drive the dollar lower against most major currencies, while driving up foreign demand for dollar-denominated gold.

With the announcement of the new tariffs by the U.S. late in the week, gold traders will be waiting for China to announce countermeasures. This could fuel the next rally. Traders want to know if China is digging in for a prolonged trade war, or ready to end the trade dispute. The size and type of China’s countermeasures should offer clues as to their strategy.