Price of Gold Fundamental Weekly Forecast – Dovish Fed Minutes Could Drive Prices Even Higher

Gold futures reached their highest level since October 16 last week, helped by a huge break in the U.S. Dollar against a basket of currencies, political tensions and concerns over the impact of Fed interest rate hikes and U.S. tax reform on U.S. economic growth.

February Comex Gold futures settled the week at $1309.30, up $30.50 or +2.39%.

The U.S. Dollar closed the year sharply lower against a basket of major currencies, plunging to its lowest level in over three months. The annual loss was the largest since 2003. This price action made the dollar-denominated gold market a more attractive investment.

The main catalyst behind the Greenback’s weakness was concern over economic growth in the wake of last week’s biggest tax reform in over three decades.

Falling U.S. Treasury yields have also helped put a lid on demand for the greenback. This has led to a boost in demand for commodities and commodity-linked currencies like the Canadian, New Zealand and Australia Dollars.

Treasury yields closed mostly lower on Friday, driving down the U.S. Dollar. The move may have been related to end-of-the-year position-squaring and this week’s batch of fresh U.S. economic data including reports on employment and the manufacturing sector.

Forecast

This week’s price action will continue to be driven mostly by the movement in the U.S. Dollar. A weaker dollar will be bullish for gold and vice-versa.

If low trading volume was behind last week’s rally then we should expect prices to retreat this week as the major hedge funds and commodity funds return to the markets.

General nervousness and uncertainty over this week’s major U.S. economic reports could also encourage gold investors to take profits after last week’s stellar gains.

On Wednesday, the ISM Manufacturing PMI report is expected to come in at 58.3, up slightly from the previous 58.2. On Thursday, traders will get the opportunity to react to the latest ADP Non-Farm Employment Change and the Weekly Unemployment Claims reports.

On Friday, the government will release its latest data on employment. Non-Farm Payrolls are expected to show the economy added 189K jobs in December. Average Hourly Earnings are expected to rise by 0.3% and the Unemployment Rate is expected to hold steady at 4.1%. The week ends with the ISM Non-Manufacturing PMI.

The Fed is also scheduled to release the minutes of its December Federal Open Market Committee meeting. The minutes could move the gold market because the minutes are expected to reveal more insight into the Fed’s plans to raise interest rates at least three times in 2018. Gold could rally if the minutes show that some FOMC members believe there may be only two rate hikes. Gold could weaken if some members show support for three or more rate hikes.