Price of Gold Fundamental Weekly Forecast – Euro Will Exert More Influence on Prices than Fed

Gold surged to its highest level since May 10, 2018, but collapsed on Friday, leading to the formation of a weekly closing price reversal top. Weaker U.S. Treasury and mixed equity markets helped provide support throughout the week, but ultimately, bullish gold traders were done in by a surge in the U.S. Dollar, which dampened demand for dollar-denominated gold futures.

Last week, August Comex gold settled at $1344.50, down $1.60 or -0.12%.

Gold futures crept higher all week with traders reacting more to economic data, geopolitical events and expectations of a Federal Reserve interest rate cut, but buyers seemed to forget about the U.S. Dollar, which was also moving higher at the same time. The dollar eventually won the battle with a 1.14% gain last week.

In the U.S., Core PPI was steady, but Core CPI was lower than expected at 0.1% versus 0.2%. Weekly Unemployment Claims rose to 222K, above the 215K forecast. Core Retail Sales were 0.5%, meeting the estimate. The previous month was revised higher to 0.5%. Retail Sales rose 0.5%, lower than the 0.7% forecast. However, the previous month was revised higher to 0.3%. Industrial Production also came in higher than expected at 0.4%.

Gold prices initially surged on Friday on the back of weaker-than-expected data from China. However, interest rates in Euro plunged on the news, driving down the Euro and sending the U.S. Dollar Index to a two-week high. This ultimately killed the gold rally along with strong U.S. retail sales data that tempered fears about a sharp downturn in the U.S. economy.

As far as geopolitical events are concerned, gold traders showed almost no reaction to the attacks on two tankers in the Middle East. Iran was blamed for the attacks, but without a military response from the United States, the story fizzled and failed to attract enough speculative buyers to sustain the rally.

Weekly Forecast

Central bank activity will dominate the trade in the dollar and gold this week with the U.S. Federal Reserve set to release its interest rate decision, monetary policy decision, and economic projections on Wednesday.

The U.S. Federal Reserve is expected to leave its benchmark interest rate unchanged at 2.50%, but could issue a dovish monetary policy statement, which hints at a rate cut in July. Investors will be looking for clues for an easing of monetary policy later this year. Traders are now pricing in a more than an 80% chance of a rate cut in July and 70% probability of another reduction in September, according to the CME Group’s Fed Watch tool.

I’m not expecting too much of a reaction to the Fed news from gold traders. The next two moves by the Fed have been telegraphed for at least a week. In my opinion, the Euro is going to have a bigger influence on the price action. A weaker Euro will drive the dollar index higher and this should keep the pressure on gold prices.