Price of Gold Fundamental Weekly Forecast – Light Report Week Shifts Focus to U.S. Dollar

The news from Friday that Chinese officials went home without visiting U.S. Farms was not a major event. So prices could retreat early in the week since this is what triggered Friday’s late short-covering rally in gold.
James Hyerczyk
Comex Gold

Gold futures closed higher last week, underpinned by a Federal Reserve rate cut and confusion over whether there would be additional cuts later this year. This helped weaken the U.S. Dollar which drove up foreign demand for dollar-denominated gold. Weaker U.S. Treasury yields and lower demand for risky assets also drove investors into gold.

Last week, December Comex gold settled at $1515.10, up $15.60 or +1.04%.

More than half of gold’s gains came on Friday after U.S. stocks fell on the news that Chinese officials were cutting short their visit to the U.S., dampening hope around trade negotiations between the two countries. The unexpected move drove investors to seek shelter in safe-haven gold.

Gold Breaks then Firms After Fed Cuts Rates

The Fed cut its benchmark interest rate by 25-basis points as expected, but the vote was mixed, suggesting uncertainty over future rate cuts. Additionally, Fed Chair Jerome Powell once again said the rate cuts were insurance against a weakening economy. Gold prices fell initially to their lowest level since August 13, but reversed to close higher on the uncertainty over future rate.

Brexit Concerns Supportive

The European Union warned last week that Britain was headed for a damaging no-deal Brexit, with London’s ideas for solving the contentious issue of the Irish border still unlikely a deal just six weeks before Britain is due to leave.

Middle East Hostilities Underpinning Prices

Last week, U.S. President Trump said there were many options short of war with Iran after U.S. ally Saudi Arabia displayed remnants of drones and missiles it said were used in a crippling attack on its oil sites that was “unquestionably sponsored” by Tehran.

Repo Market Problems?

Last week, there was an aberration in the U.S. money markets that forced the Fed to inject massive amounts of liquidity into the “repo” market twice. Although the incident is not a harbinger of deeper market problems or a larger crisis, it should be watched to see if the issue continues. If the problem continues or gets worse, the dollar is likely to tumble, driving gold prices higher.

Weekly Forecast

The news from Friday that Chinese officials went home without visiting U.S. Farms was not a major event. So prices could retreat early in the week since this is what triggered Friday’s late short-covering rally in gold.

Furthermore, the U.S. trade representative’s office issued a statement characterizing the two days of talks as “productive” and said higher-level talks will take place as planned next month.

Gold traders are also likely to be watching for a possible escalation of events in the Middle East. The Pentagon said it will deploy U.S. forces to the Middle East on the heels of the Iranian attack on Saudi Arabian oil facilities, Secretary of Defense Mark Esper announced Friday.

“The president has approved the deployment of U.S. forces which will be defensive in nature and primarily focused on air and missile defense,” Esper said, adding that Saudi Arabia requested the support.

The direction of gold this week is likely to be determined by the movement in the U.S. Dollar. Treasury yields and demand for risky assets will also influence the direction of gold.

There is talk that the Fed will skip a rate cut in October, but could cut again in December. The chances of an October cut could be influenced by this week’s U.S. reports including Consumer Confidence, Final GDP, Core Durable Goods Orders and Personal Spending.

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