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Price of Gold Fundamental Weekly Forecast – Fed Decisions Take Backseat to Coronavirus Fears

By:
James Hyerczyk

Since the Fed is not likely to offer any surprises, the focus this week will remain on the economic impact of the coronavirus.

Price of Gold Fundamental Weekly Forecast – Fed Decisions Take Backseat to Coronavirus Fears

Gold futures surged to a more than two-week high on Friday to put the market up for the week after a tepid start. According to reports, the latest updates on the coronavirus dented risk sentiment, prompting investors to seek protection in the lower-yielding asset.

On Friday, the entire market switched into risk-off mood after the U.S. Centers for Disease Control and Prevention confirmed a second U.S. case of the coronavirus in the country, dampening appetite for riskier assets.

On Friday, April Comex gold settled at $1578.20, up $11.70 or +-0.75%.

Helping to boost non-interest-bearing Bullion was a plunge in U.S. 10-year Treasury yields, which fell to a two-week low. However, gains may have been limited by a spike higher in the U.S. Dollar against a basket of currencies.

Until Friday’s price surge, physical gold demand was subdued in major Asia hubs on account of the Lunar New Year holidays, with growing fears the coronavirus in China could further dampen activity.

Fed to Hold Rates Steady

The Federal Reserve holds its first meeting of the year this week and will release its Federal Open Market Committee (FOMC) and interest rate decisions on Wednesday. I expect policymakers to leave interest rates unchanged and signal that their “sit-tight” policy posture will continue for an extended period.

The Fed’s decisions are not likely to surprise investors since a number of U.S. central banking experts have come to the same conclusions.

In a January 20-23 survey of 12 top financial and economic experts, 100 percent of respondents anticipate that the FOMC will leave borrowing costs alone when they end their two-day interest rate decision in Washington on Wednesday. According to Bankrate.com, “Experts reported a confidence level of 97 percent.”

Furthermore, Richard Moody, chief economist at Regions Financial Corporation said, “Given the outlook for growth and inflation, there is no rationale for additional monetary accommodation at this point.”

If Fed policymakers do what they are predicted to do then it means the Federal Funds rate would hold in its target range between 1.5 percent and 1.75 percent.

The Fed is also expected to be very clear in its communications that it is pleased with maintaining the status quo for an extended period of time. In keeping with this theme, policymakers are expected to signal that rates are “likely to remain appropriate” at their current level, as long as the economy doesn’t change significantly. Experts believe the phrase will appear in both the post-meeting press conference and statement, as they did in their December monetary policy statement.

Weekly Forecast

Since the Fed is not likely to offer any surprises, the focus this week will remain on the economic impact of the coronavirus.

Early in the week, I expect to see a bullish response to the news from over the weekend. Later in the week, the World Health Organization (WHO) could trigger another volatile response by traders if it declares the dangerous respiratory disease a global health emergency.

Dr. Tedros Adhanom Ghebreyesus, the WHO’s director general, will travel to Beijing, China, to meet with government and health officials on the Wuhan coronavirus outbreak.

The virus has been identified in Japan, South Korea, Taiwan, Thailand, Vietnam, Singapore, Nepal, France, Australia and the U.S. and has so far infected 2,116 people and killed 56, the majority of whom are in Wuhan, China.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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