Price of Gold Fundamental Weekly Forecast – Dovish Central Banks Give Bulls More Breathing Room

Gold futures finished nearly 2% higher last week, boosted by dovish tones from three prominent central banks – the Reserve Bank of Australia (RBA), the U.S. Federal Reserve and the Bank of England (BoE). The moves by these central banks seemingly assures gold bulls that interest rates won’t be moving higher for months, greenlighting the possibility of higher near-term prices.

Last week, December Comex gold settled at $1816.80, up $32.90 or +1.84%.

RBA Says Inflation Too Low to Raise Rates

Last Tuesday the Reserve Bank of Australia (RBA) dampened investor hopes for a hawkish pivot, kicking off a big week for monetary policy that included decisions from the Federal Reserve and Bank of England.

The RBA stressed that inflation was still too low, although it also omitted its previous projection that rates were unlikely to rise until 2024 and dropped a key target for the April 2024 government bond.

Fed Unveils Tapering Plan, Restates Inflation is ‘Transitory’

The Federal Reserve threw its weight back behind the drive for a full U.S. jobs recovery last Wednesday, restating its belief that current high inflation is “expected to be transitory” and, despite risks to that view, arguing that price pressures will ease and pave the way for stronger employment and economic growth in the months to come.

Even as the U.S. central bank announced it was tucking away one of its main pandemic-fighting tools, by trimming its massive bond-buying program beginning this month, its latest policy statement and Fed Chair Jerome Powell’s remarks in a news conference signaled it would stay patient – and wait for more job growth – before raising interest rates.

Bank of England Puts Rate Hike on Hold

The BoE kept rates on hold on Thursday, wrong-footing investors who had been convinced that it was about to become the first of the world’s big central banks to raise borrowing costs amid the COVID-19 pandemic.

“The Bank of England was obviously more dovish than we and the market had expected,” analysts of BofA Securities said in a note published on Friday.

“As we struggle with the new narrative, and shuffle our first expected hike to Feb – although the Dec versus Feb call is a tough one – the overarching message is that regardless of when these hikes come, the market seems to be pricing too many.”

Weekly Outlook

The bullish reaction to Friday’s strong U.S. Non-Farm Payrolls report shows investors believe one solid report is not going to change what Federal Reserve Chair Jerome Powell signaled in his post-policy meeting press conference.

Nonetheless, with the Fed not scheduled to meet until December, the near-term focus will be on U.S. economic data and Fed member speeches.

This week, Fed Chair Powell will give speeches on Monday and Tuesday. Traders are hoping he’ll reveal more about the timing of the first post-pandemic rate hike. Although he’s not likely to waiver much from last week’s dovish tone.

The economic reports include the monthly Producer Price Index (PPI) and the monthly Consumer Price Index (CPI). PPI is expected to continue to climb with traders pricing in a reading of 0.6%, up from 0.5%. CPI is expected to rise 0.5%, up from 0.4%. Core CPI is expected to show a 0.4% increase, up from 0.2%.

Gold traders should keep an eye on the rate hike timetable for the RBA, Fed and BoE. Right now it shows the RBA won’t raise rates until 2024, the Fed until June or July 2022 and the BoE in perhaps December 2021.

This give gold bulls enough time to enjoy a strong near-term rally with $1839.00 a key upside target this week. It’s also the trigger point for an acceleration to the upside.