Price of Gold Fundamental Weekly Forecast – Longer-Term Outlook Still Bearish As Market Nears 1-Year Low

Investors continued to shed long positions in gold last week with the precious metal hitting its lowest level since July 12, 2017. The price action has been primarily driven by a stronger U.S. Dollar and expectations for additional rate hikes by the Fed later this year.

Since gold is a dollar-denominated asset, foreign demand for gold tends to decrease when the U.S. Dollar strengthens. Furthermore, since gold doesn’t pay interest or a divided, it becomes a less attractive investment during a rising interest rate environment.

Last week, August Comex Gold settled at $1254.50, down $16.20 or -1.27%. Since December 31, 2017, gold has lost $59.50 or -4.53%.

The U.S. Dollar continued to be supported last week by the divergence in monetary policy between the hawkish U.S. Federal Reserve and other less-hawkish and dovish central banks. Other catalysts driving the price action in the U.S. Dollar ranged from lingering concerns over a trade war between the United States and its major trading partners, China and the European Union to U.S. economic data to Fed member comments.

At one point last week, gold fell and the dollar rose as lingering global trade tensions prompted traders to ditch most high-yielding currencies and investors focused on expectations the Federal Reserve will continue to raise interest rates.

In economic news, orders for long-lasting U.S. factory goods declined for the second straight month in May, as demand for cars, metal products and aircraft fell. The Commerce Department said Wednesday durable goods orders dropped 0.6 percent last month. That followed a steeper drop of 1 percent in April.

On Thursday, the Commerce Department reported that U.S. first-quarter growth slowed more than estimated. Gross domestic product increased at a 2.0 percent annual rate in the January-March period, instead of the 2.2 percent pace it reported last month.

Consumer confidence fell well below economists’ expectations in June, fueled by a bleak outlook for U.S. economic conditions. The Confidence Board’s index dropped to 126.4 from a revised 128.8 in May. The index was expected to hit 128.1.

Additionally, Dallas Fed Bank President Robert Kaplan said he believes the U.S. central bank’s monetary policy is still accommodative and suggested the Fed could raise rates at least two more times before it stops being accommodative. However, Federal Open Market Committee member Raphael Bostic said he may rule out a fourth rate hike this year if trade issues start to negatively affect the economy.

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Forecast

The longer-term outlook for gold is bearish, however, over the short-term, we could see some profit-taking or short-covering due to technically oversold conditions. The shorts are still in control and the momentum is to the downside. Additionally, safe haven demand is driving money into the dollar and U.S. Treasurys.

Recent data from the Commodity Futures Trading Commission shows that long positions in gold are at a 2-1/2 year low. At the same time, hedge funds are aggressively going long the U.S. Dollar on increased bets the currency will rise because of hawkish Fed activity.

Economic data could influence the price action. Bullish data should put even more pressure on gold. U.S. reports include ISM Manufacturing PMI, ISM Non-Manufacturing PMI, the Fed Minutes and the U.S. Non-Farm Payrolls report.

Wednesday is a U.S. bank holiday.