Price of Gold Fundamental Weekly Forecast – Gold Investors Unfazed by Dollar Spike

Gold futures finished lower last week while posting a relatively light trading range. The market also finished inside the previous week’s range, which suggests investor indecision and impending volatility. Keeping a lid on prices was a strong U.S. Dollar. Underpinning the precious metal was a drop in U.S. Treasury yields and geopolitical turmoil in Turkey.

For the week, December Comex gold finished at $1219.00, down $4.20 or +0.34%.

The dollar rose as investors bet global trade tensions and a robust U.S. economy would continue to support the currency.

Bullish traders continued to gain the upper hand in the trade war scenario over emerging markets on the notion that tariffs may actually narrow the U.S. trade deficit. In economic news, better-than-expected data on U.S. initial jobless claims and generally rising producer prices also helped the dollar hold its gains.

Finally on Friday, the U.S. Dollar Index spiked to its highest level since May 17, 2017 after the Euro plunged against the greenback to its lowest level in more than a year as a steep drop in the Turkish Lira sparked a massive flight-to-safety exodus into the dollar.

The dollar was also underpinned after data on Friday showed that core consumer prices rose 0.2 percent in July, in line with economists’ expectations and the same gain as in May and June.

In other news, speculators expanded their net short position on the Comex exchange to the biggest ever recorded, helping to drive prices lower.

Forecast

Will they or won’t they? That is the question. Given the current situation unfolding in Turkey, which is having a dramatic effect on the Euro and in Russia, which saw the Rouble crumble to its lowest level in more than two years, will aggressive counter-trend buyers finally step in and start treating gold like a safe-haven asset, or will they continue to succumb to the stronger U.S. Dollar, which lowers foreign demand for dollar-denominated gold?

Last week’s tight trading range suggests these two events helped hold the market inside a tight trading range. A few weeks ago when the dollar was pressing a multi-year high, gold was touching a multi-year low. On Friday, the dollar spiked to its highest level in more than a year and gold held its ground.

It’s probably too early to say gold is diverging from its relationship with the dollar, but it’s not too early to start preparing for a short-covering rally especially since there are a record number of shorts that may have to cover.

Although the fundamentals are currently stacked against gold, it’s not going to take much to encourage short-sellers to start booking profits. Another burst to the upside by the dollar, accompanied by another flat gold session will be a sign that buyers are coming in to defend the bottom. This may be enough to fuel the first round of short-covering. A second will come on a move through $1228.60. Finally, the trend will change to up on a trade through $1244.70.