Price of Gold Fundamental Weekly Forecast – Less-Dovish Fed, Solid CPI Could Weigh on Prices

Gold futures finished higher last week despite giving back some of its earlier gains on Friday. A string of disappointing U.S. economic reports throughout the week led to increased worries the global economic slowdown had reached the United States. The strength last week was fueled by concerns that a slowdown in manufacturing will spread to other parts of the U.S. economy.

Most of the rally was fueled by safe-haven buying as investors aggressively shed the higher risk U.S. stock market for the safety of the U.S. Treasury bond market. This drove down Treasury yields, making the U.S. Dollar a less-attractive investment. The lower U.S. Dollar drove up foreign demand for dollar-denominated gold.

Last week, December Comex gold settled at $1512.90, up $6.50 or +0.43%.

The two key reports that encouraged investors to cover short positions in gold were the ISM Manufacturing PMI report that showed manufacturing activity contracted in September for the second month in a row, and the ISM Non-Manufacturing PMI, which also declined but remained in expansion territory.

Helping to encourage speculators to lighten up on the long side was the September Non-Farm Payrolls report, which provided some assurance that despite a slowdown in hiring, the labor market remains tight, which is a positive for consumers and the economy. It also encouraged investors to reduce bets the U.S. Federal Reserve would cut interest rates aggressively this year.

Weekly Forecast

Data from the U.S. will dictate the direction of gold prices this week. Basically, lower Treasury yields and weaker stock prices will be supportive for gold. A rise in yields and trader demand for risky assets will encourage selling. The biggest influence on prices will be the direction of the U.S. Dollar.

In the U.S. this week, investors will get the opportunity to react to the three speeches from Federal Reserve Chairman Jerome Powell and the Federal Open Market Committee Meeting Minutes. Traders will be looking for clues as to the probability of a Fed rate cut in October. As of Friday’s close, the CMEGroup’s FedWatch Tool is predicting a 76.4% chance of a rate cut on October 30.

The major report is Thursday’s Consumer Price Index. It is expected to come in at 0.1%. Core CPI is expected to have risen 0.2%.