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Price of Gold Fundamental Weekly Forecast – Long-Term Buyers Waiting for Test of Value Area

Longer-term investors are going to sit tight since they know that time is on their side. They can afford to wait until gold hits an attractive value area before they take another shot at the long side.
James Hyerczyk

Gold futures closed lower last week, posting its worst week in more than a month as optimism over economies easing coronavirus lockdowns encouraged investors to book profits. There was a little give back on Friday after President Trump threatened new tariffs against China, but most experts agreed that the move may have been exaggerated due to the thin May Day holiday trade.

Last week, June Comex gold settled at $1700.90, down $34.70 or -2.00%.

Gold is being manipulated by short-term traders and long-term investors. Yes, we know that all markets are influenced by the same factors. In gold’s case, the longer-term investors are banking on fiscal stimulus from governments and monetary stimulus from central banks to provide support. Short-term traders seem to be reacting more to anything coronavirus-related such as the number of cases and lockdown restrictions.

Short-Term Factors

Last week, the focus for gold traders was on the lifting of lockdown restrictions around the world.

For instance, U.K. Prime Minister Boris Johnson promised to set out a plan next week on how Britain might start gradually returning to normal life. Meanwhile in the United States, half of all U.S. states forged ahead with their strategies for easing restrictions on restaurants, retail and other businesses in hopes of reviving virus-stricken commerce.

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Long-Term Factors

Central banks and governments around the world have announced massive fiscal and monetary measures to limit economic damage caused by the virus outbreak and restrictions put in place to curtail its spread.

Last week, the U.S. Federal Reserve kept its benchmark interest rate anchored near zero and pledged to keep it there until the economy recovers. A statement following the Federal Open Market Committee meeting pledged accommodative policy until the economy again reaches full employment and 2% inflation. The Fed also said the coronavirus crisis will “weigh heavily” on economic activity. Finally, central bank policymakers promised to use their tool as appropriate to foster growth.

Weekly Forecast

This week, short-term gold traders are going to continue to focus on the coronavirus numbers and the progress of the countries lifting their restrictions. Good numbers will pressure gold, bad numbers will likely lead to renewed lockdowns and this would be bullish for gold.

In the meantime, the longer-term investors are going to sit tight since they know that time is on their side. They can afford to wait until gold hits an attractive value area before they take another shot at the long side. They know that the fiscal and monetary stimulus will be in place for at least a year or two. In the meantime, the global economy should continue to weaken and more stimulus is likely to be on the way.

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