Price of Gold Fundamental Weekly Forecast – Focus on Fed Interest Rate Forecast

Gold futures fell last week in reaction to a recovery in the U.S. Dollar. The dollar was supported by a series of events – the testimony of former FBI Director James Comey, a dovish move by the European Central Bank and an unexpected outcome in the UK elections.

August Comex Gold closed the week at $1271.40, down $8.80 or -0.69%.

Comey eased tensions enough to diminish demand for safe haven assets like gold. The ECE kept interest rates unchanged and also lowered their outlook for inflation. This drove down the Euro against the U.S. Dollar. In the U.K., the British Pound plunged after the Conservative Party lost the majority, leading to a hung Parliament.

Forecast

This week’s price action will be determined by a slew of U.S. economic reports including U.S. consumer inflation, producer inflation, retail sales and building permits. However, the focus for traders will be on the Federal Open Market Committee’s interest rate decision and monetary policy statement on Wednesday.

The Fed is widely expected to raise rates 25 basis points. This should help underpin the dollar and pressure gold prices.

Gold traders will be most interested in the Fed’s press conference following the release of its statement because at the conference, the central bank will reveal its interest rate projections. The markets are going to react to these forecasts because they will tell us how many more rate hikes to expect this year.

Earlier in the year, the Fed said it could raise rates 3 or 4 times in 2017. Recent weak data suggests the Fed may only raise rates once more after June, perhaps in December.

Gold traders will react negatively if the Fed keeps the same forecast, but could rally if it slashes its outlook for the economy and lowers expectations for future rate hikes.