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Price of Gold Fundamental Weekly Forecast – Direction Hinges Upon Escalation of Trade Dispute, Fed Chair Powell’s Testimony

This week, investors will continue to focus on demand for the U.S. Dollar and risky assets. Additionally, the U.S. economic data’s influence on Treasury yields and the chances of additional rate hikes from the Fed will be another catalyst driving the price action in gold. At this week’s Congressional testimony on Tuesday and Wednesday, there is no doubt that Powell will be discussing the direction of interest rates, strengthening inflation and the potential impact of a trade war on U.S. economic growth.
James Hyerczyk
Gold Bars and Dollar
Gold Bars and Dollar

Gold futures tumbled last week after early strength failed to draw in enough buyers to continue the technical retracement that began the week-ending July 6. By the end of the week, sellers had driven prices through the bottom at $1238.80 that started the short-covering rally.

August Comex Gold settled at $1241.20, down $14.60 or -1.16 percent.

The catalyst behind the selling pressure was the stronger U.S. Dollar. Since gold is a dollar-denominated asset, it tends to weaken because the stronger dollar limits demand from foreign buyers.

Last week, the dollar was driven higher on two-fronts. Firstly, robust U.S. producer and consumer inflation reports helped drive support for at least two more rate hikes by the Fed later this year. Secondly, the threat of additional tariffs on China by the U.S. also led to increased demand for the dollar as a safe haven asset.

U.S. government data showed U.S. producers prices increased more than expected in June amid gains in the cost of services and motor vehicles, leading to the biggest annual increase in 6-1/2 years. According to the U.S. Labor Department, the producer price index for final demand climbed 0.3 percent last month after rising 0.5 percent in May. That pushed the annual increase in the PPI to 3.4 percent, the largest rise since November 2011, from 3.1 percent in May.

Consumer prices also rose in June at the highest yearly pace since 2012, reflecting a U.S. economy that’s running hotter than any time since the Great Recession.

In June, the consumer price index increased 0.1%. The monthly increase in the cost of living rose to a 12-month pace of 2.9% from 2.8%, marking the highest level in more than six years, the government said. A year ago, the 12-month rate stood at just 1.6%.

Core CPI advanced 0.2% last month. The yearly increase in the core rate edged up to a more modest 2.3%, the highest benchmark in a year and a half.


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Forecast

This week, investors will continue to focus on demand for the U.S. Dollar and risky assets. Additionally, the U.S. economic data’s influence on Treasury yields and the chances of additional rate hikes from the Fed will be another catalyst driving the price action in gold.

Gold traders will be watching the U.S. data closely. Key reports include U.S. Core Retail Sales and Retail Sales, and Building Permits. Fed Chairman Jerome Powell is also scheduled to testify before Congress on Tuesday and Wednesday.

U.S. Federal Reserve Chairman Jerome Powell said in an interview last week that he believed “the economy’s in a really good place” at the moment with unemployment at the lowest point in nearly two decades and inflation finally approaching the Fed’s optimal goal of 2 percent annual increases.

Powell also said Fed officials have been hearing a “rising level of concern” from business executives following the tough talk from the Trump administration, which has imposed penalty tariffs on a number of countries in an effort to open markets for U.S. goods.

Finally, in an interview, Powell said he was “very pleased with the results” of the Fed’s gradual pace of rate hikes.

At this week’s Congressional testimony on Tuesday and Wednesday, there is no doubt that Powell will be discussing the direction of interest rates, strengthening inflation and the potential impact of a trade war on U.S. economic growth.

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