Price of Gold Fundamental Weekly Forecast – Fed Powell’s Comments Should Set the Tone This Week

Short-term gold traders have a lot on their tables at this time. Some of the factors make sense to the gold bulls. Others are counter-intuitive and make more sense to the bears. However, the price action suggests the market may have to move lower before it makes another major move to the upside.

Last week, June Comex gold settled at $1713.90, up $13.00 or +0.76%.

Gold has been drifting sideways to lower for close to a month. The series of lower tops and lower bottoms serves as technical proof that the short-term trend is down. The long-term trend remains up, however.

Gold hit its last multi-year high on April 14 at $1788.80. This occurred after the bulk of the central bank monetary and government fiscal stimulus hit the global economy. So essentially, the stimulus has been priced into the market. This is why gold is struggling to make new highs at current price levels. This also suggests that it may have to break into a value zone in order to attract new buyers.

Without fresh stimulus concerns or an acceleration in the number of new coronavirus cases globally, gold bulls may be having a hard time justifying putting on new positions at current price levels. They may be having trouble assessing the risk/reward of new long positions.

Gold was drifting lower early last week with the selling driven by concerns that the global economy would improve with the lifting of coronavirus restrictions. Late in the week, the market spiked higher after Federal Funds turned negative. This sent a signal to traders that the market thinks the Fed will go to negative rates next year. A weaker U.S. Dollar also contributed to the gains as investors continued to shed safe-haven positions in the greenback.

Weekly Forecast

I don’t think this week’s U.S. Consumer Inflation and Retail Sales reports will have much of an influence of prices, but Fed Chairman Jerome Powell could shake things up a little on Wednesday.

Powell speaks via webcast hosted by the Peterson Institute for International Economics at 13:00 GMT. He is expected to speak about the current issues facing the U.S. economy.

Gold could spike higher again if Powell says that negative rates are still on the table. However, that hasn’t been his style so he is likely to downplay the idea, which could drive gold prices lower if he is convincing enough.

Essentially, as the easing of coronavirus restrictions goes, so too will go the economic recovery and the gold market. In other words, gold will feel pressure as long as countries and states continue to lift restrictions and the coronavirus curve continues to flatten. But a resurgence in new cases or renewed restrictions would be supportive for gold because this would likely lead to new stimulus measures.