Price of Gold Fundamental Weekly Forecast – If Stocks Stabilize, Focus Will Shift to U.S. Dollar, Interest Rates

Gold futures rose last week to their highest level since July as investors sought the relative safety of the precious metal due to lower demand for higher risk assets. The safe-haven asset posted is fourth consecutive week of gains. Also generating support for gold was a report showing weaker-than expected U.S. inflation.

For the week, December Comex Gold futures settled at $1235.80, up $7.10 or +0.58%.

It was a light week as far as economic releases were concerned with most of the price action fueled by safe-haven buying tied to another week of heightened volatility in the global equity markets.

Safe-haven buying drove gold to a multi-month high as investors sought shelter from another week of losses in global stock markets as well as rapidly rising volatility. Several factors actually contributed to the wild swings in the equity markets including a few earnings disappointments, fear of rising interest rates, a simmering conflict between the European Union and the Italian government, Western criticism of oil power Saudi Arabia after the killing of dissident journalist Jamal Khashoggi, and worries about slowing global economic growth.

U.S. Economic News

Core Durable Goods Orders failed to impress with a 0.1% reading. Traders were looking for a 0.5% increase. Advance GDP came in higher-than-expected at 3.5% versus a 3.3% forecast and 4.2% reading at the end of the second quarter.

Additionally, the Commerce Department said the PCE price index, the Fed’s key measure of inflation, increased by 1.6 percent last quarter, much less than the 2.2 percent increase expected by economists.

A jump in consumer spending was a surprise. Consumer spending, which accounts for more than two thirds of U.S. economic activity, grew by 4 percent in the third quarter, the strongest since the fourth quarter of 2014.

The surge in consumer spending was necessary to help overall GDP expansion because business spending declined 7.9 percent. This was the biggest quarterly decline in business spending since the first quarter of 2016.

Housing data also shook up traders with New Home Sales coming in at 553K versus a 627K forecast. The previous month was also revised lower to 585K.

Other News

Holdings in the world’s largest gold-backed exchange-traded fund, SPDR Gold Trust, are now at their highest since the end of August, at 24.1 million ounces.

Forecast

Although gold is in an uptrend on the daily chart, it is still in a downtrend on the weekly chart. All the market is doing is retracing a steep sell-off fueled by rising interest rates in the U.S. However, if upside momentum continues to build, we could see a drive into $1277.60 to $1303.70 before we’re likely to see renewed selling pressure. On the downside, the best support is $1205.10. Sometimes a market has to pullback before moving higher. This may be the case for gold.

We’re not likely to see a prolonged move up if all the buying is short-covering so at some point, the market has to pullback into a value zone in order to attract new buyers.

The focus for traders this week will continue to be on stock market volatility, the direction of the U.S. Dollar and interest rates.

It’s interesting to note that the PCE inflation number released on Friday came in below the Fed’s 2 percent target. Although the Fed is not likely to cave to political pressures to slow down the pace of the rate hikes, the PCE number may be enough to cause the Fed to take a break from raising rates too aggressively. This will put pressure on the U.S. Dollar and should provide support for dollar-denominated gold.

This week’s reports include Consumer Confidence on Tuesday. ISM Manufacturing on Thursday and the U.S. Non-Farm Payrolls report on Friday.