Price of Gold Fundamental Weekly Forecast – Dollar’s Direction Controls Price Action

Gold futures hit a multi-year low last week, driven lower by a stronger U.S. Dollar, expectations of higher interest rates and increased demand for risky assets. Traders seemed unfazed about the threat of additional tariffs by the US on China, however, there was a little short-covering on Friday, following the release of the mixed U.S. Non-Farm Payrolls report.

For the week, December Comex Gold futures settled at $1223.20, down $9.50 or -0.77%.

One factor pressuring gold prices was the U.S. Dollar. The U.S. Dollar posted a two-sided trade last week against a basket of currencies. The greenback was driven lower Monday and early Tuesday before reversing to the upside. This created enough upside momentum to fuel a three day rally before reversing to the downside on Friday.

The dollar slipped against most major currencies on Monday and early Tuesday on position-squaring and profit-taking ahead of economic data and central bank monetary policy meetings.

A hawkish Federal Reserve helped drive the greenback higher on Wednesday after the central bank gave an upbeat assessment of the world’s biggest economy and stayed on course to gradually lift interest rates. The Fed kept interest rates unchanged as widely expected, and said U.S. economic growth has been rising strongly and the job market has continued to strengthen.

The U.S. Dollar surged on Thursday on safe-haven buying after President Donald Trump said he is considering the U.S. raise proposed tariffs on $200 billion of Chinese goods to 25 percent from the 10 percent rate his administration suggested on July 10. China then warned of retaliation if the U.S. followed through with its plan.

Finally, the U.S. Dollar suffered a slight setback on Friday against a basket of currencies after data showed U.S. job growth slowed in July. Additionally, the greenback also slipped against the Yuan after the Chinese central bank acted to stabilize the currency by stemming speculation against it.

Forecast

The direction of the U.S. Dollar is likely to continue to be the biggest influence on the price action in gold. Of particular interest for U.S. Dollar and gold investors this week will be U.S. economic data and central bank activity in China, which can influence the dollar. Basically, a weaker dollar could underpin gold, while a stronger U.S. Dollar is likely to lead to another new low for the year.

Economic data from the U.S. will be scarce until Thursday when the U.S. Producer Price Index is released at 1230 GMT. It is expected to show a 0.2% gain versus the previously reported 0.3%.

On Friday, the Consumer Price Index is expected to show growth of 0.2%, up from 0.1%. The Core CPI is also expected to come in at 0.2%, matching the previous reading.