Price of Gold Fundamental Weekly Forecast – Direction of Treasury Yields Will Dictate Next Move in Gold

Gold closed higher last week for the first time in four weeks. The market traded weaker early in the week, but buyers came in to stop the selling at $1304.20, slightly above the previous week’s low at $1302.30. Additionally, speculators found value inside a major technical retracement zone at $1311.40 to $1296.20.

June Comex Gold futures settled at $1320.70, up $6.00 or +0.46%.

The mid-week recovery was helped by a drop in Treasury Yields and a weaker U.S. Dollar, which were pressured by speculators betting the U.S. Federal Reserve would be less-aggressive when raising interest rates this year.

Gold was also underpinned by increased tensions in the Middle East after President Trump announced the U.S. would withdraw from the Iran nuclear accord. However, this thought was tempered later in the week after the announcement of a summit between the United States and North Korea to be held in Singapore eased geopolitical fears.

In economic news, helping to support gold was a weaker-than-expected U.S. consumer inflation report which dampened speculation the Fed would raise rates as many as three times later this year. The Labor Department said on Thursday its Consumer Price Index rebounded less than expected in April.

U.S. consumer inflation rose 0.2 percent versus an estimate of 0.3%. Core CPI rose 0.1 percent, lower than the 0.2% estimate.

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Forecast

This week, gold investors will continue to react to the movement in U.S. Treasury yields and the direction of the U.S. Dollar. If yields continue to retreat, gold will be supported with $1335.90 to $1343.80 the primary upside target. A trade into this zone is likely to attract sellers. On the downside, the major support zone remains $1311.40 to $1296.20. Another move over 3.00% by the 10-year U.S. Treasury yield is likely to put pressure on the precious metal.

The U.S. Dollar is likely to respond to key U.S. reports on Retail Sales and Building Permits. Core Retail Sales are expected to rise 0.5%, up from the previously reported 0.2%. Retail Sales probably rose 0.4%, down from 0.6%. This report is important because it is a loose indicator of inflation.

Building Permits are expected to come in at 1.35 million units, matching the previous month’s report. This probably reflects rising mortgage rates.

There are also a slew of minor reports including the Empire State Manufacturing Index, Housing Starts, Capacity Utilization, Industrial Production, the Philly Fed Manufacturing Index and Weekly Unemployment Claims.

Several Fed speakers are also scheduled to throughout the week including FOMC Member Mester, Bostic, Williams and Brainard. Gold will react if they comment on inflation and the number of potential rate hikes.