Price of Gold Fundamental Weekly Forecast – Gold Bulls Stymied by Rising Stocks, Treasury Yields, U.S. Dollar

Gold prices tried to breakout to the upside early last week, but the rally just couldn’t gain enough traction to fuel the move.

At the start of the week, gold rose to a seven-week high after U.S. economic data showed lukewarm inflation and nearly flat consumer spending, raising the question of whether the U.S. Federal Reserve will raise interest rates in the coming months.

At the end of the week, the market succumbed to a trio of negatives:  rising Treasury yields, a stronger U.S. Dollar and increased demand for higher-risk assets. All three were boosted by a better-than-expected U.S. Non-Farm Payrolls report.

December Comex Gold settled the week at $1264.60, down $10.70 or -0.84%.

The primary market moving event last week was Friday’s U.S. Non-Farm Payrolls report. According to the government, the U.S. economy added 209,000 jobs in July and the unemployment rate was 4.3 percent. Traders were looking for the report to show 183,000 jobs were added to the economy last month. The unemployment rate came in as expected.

Average Hourly Earnings came in as forecast at 0.3%. Last month’s report showed a 0.2% rise. The closely watched wage number showed average hourly earnings rose 2.5 percent. The average work week also was unchanged at 34.5 hours.

Forecast

Gold has been underpinned lately because a number of factors including falling Treasury yields, confusion over Fed policy, a weaker U.S. Dollar and political and geopolitical uncertainty. However, gains have been capped by increased demand for risky assets, i.e. the stock market rally.

I mentioned several times over the past week that speculative buying will not be strong enough to drive gold higher as long as cash continues to flow into stocks. Given last week’s jobs report, I can now say that rising Treasury yields and the U.S. Dollar along with stocks will continue to keep a lid on any rallies.

I don’t think the market will fall all the way back to its July 10 bottom at $1211.10, but it could fall into the $1245.70 to $1237.50 range. Gold is likely to become more attractive on dips especially since there is still political and geopolitical risk out there.

In other news, this week’s major reports are the U.S. Producer Price Index on August 10 and the U.S. Consumer Price Index on August 11. The PPI is expected to rise 0.1%. The CPI is expected to rise 0.2% while Core CPI is also expected to come in at 0.2%.

Weak inflation data could help the market regain all of the losses attributed to the U.S. jobs data. However, unless stocks have a sizable break, gains will once again be limited.