Price of Gold Fundamental Weekly Forecast – Inflation, Fed Speakers, COVID Fears Likely to Fuel Volatility

Gold futures plunged last week to its lowest level since June 30 last week as a solid jobs report supported the notion of sooner-than-expected tightening by the Federal Reserve. The robust labor market news set-off a series of events, including a spike higher in Treasury yields and the U.S. Dollar, which raised the opportunity cost of holding non-interest bearing bullion, while dampening demand for the dollar-denominated asset.

Last week, December Comex gold futures settled at $1763.10, down $54.10 or -2.98%.

In response to the news, holdings in the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell to 1,025.28 tonnes on Friday, from 1,027.61 tonnes on Thursday. Additionally, India’s physical gold market flipped into a small premium last week for the first time in a month as prices eased although activity was still subdued.

Payrolls Increase 943,000 in July as Unemployment Rate Slides to 5.4%.

Hiring rose in July at its fastest pace in nearly a year despite fears over Covid-19’s delta variant and as companies struggled with a tight labor supply, the Labor Department reported Friday.

Nonfarm payrolls increased by 943,000 for the month while the unemployment rate dropped to 5.4%, according to the department’s Bureau of Labor Statistics. The payroll increase was the best since August 2020.

Economists surveyed by Dow Jones had been looking for 845,000 new jobs and a headline unemployment rate of 5.7%. However, estimates were diverse amid conflicting headwinds and tailwinds and an uncertain path ahead for the economy.

Average hourly earnings also increased more than expected, rising 0.4% for the month and are up 4% from the same period a year ago, at a time when concerns are increasing about persistent inflationary pressures.

Weekly Outlook

With the Federal Reserve not scheduled to meet until September 21-22, the price action is likely to remain volatile with investors taking their cues from U.S. economic data and Federal Reserve comments, but only to the extent that they drive similar volatility in Treasury yields and the U.S. Dollar.

The wildcard is the new COVID outbreak. The latest rush of new coronavirus cases in the U.S. and around the world started around mid-July. The current data suggests conditions will worsen in August.

Although the government is on record saying the economy would not shutdown, the jump in COVID infections has raised fears that it could slow economic activity in a recovery that began in April 2020 and has shown resilience despite the period flare-ups of COVID cases.

The major report this week is on consumer inflation on Wednesday. Economists expect a gain of 0.5% in July, down from 0.9% in June. Core CPI is expected to have risen 0.4%.

Several Fed speakers are also on tap this week so look for their commentary to drive the price action. Most are likely to acknowledge the strength of the jobs report with several saying they would like to see the September report before making up their minds about tapering at the late September meeting.