James Hyerczyk
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Comex Gold

Gold futures posted a two-sided trade last week before settling higher. The market was primarily supported by a weaker U.S. Dollar and falling U.S. Treasury yields, but gains were limited by a surge in demand for higher-risk assets. Investors continued to treat the psychological $1300 level like a pivot. If the dollar continues to weaken then this price is likely to become new support.

Last week, April Comex gold settled at $1302.90, up $3.60 or +0.28%.

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Fuelling gold’s advance last week was the drop in the U.S. Dollar from a multi-month high reached the previous week. Traders said the greenback was weighed down by weaker than expected manufacturing and factory output data as well as relatively tame consumer and producer inflation.

Last week, it was reported that U.S. Construction spending rose 1.3%, however, these gains were more than offset by lower-than-expected readings in the Empire State Manufacturing Index, Capacity Utilization and Industrial Production.

The big three reports:  Retail Sales, Consumer Price Index and Producer Price Index offered mixed results, but the big takeaway for investors was that they were not strong enough to change Fed policy, meaning the central bank was likely to remain “patient” before raising rates. This approach tends to keep pressure on interest rates, making the dollar a less-attractive investment while driving up demand for dollar-denominated gold.

U.S. retail sales unexpectedly rose in January, lifted by an increase in purchases of building materials and discretionary spending, but receipts in December were much weaker than initially thought. The relatively strong retail sales report will probably not change expectations for a sharp slowdown in economic growth in the first quarter.

U.S. consumer prices rose for the first time in four months in February, but the pace of the increase was modest, resulting in the smallest annual gain in nearly 2-1/2 years. Slowing domestic and global growth ae keeping inflation in check even as a tight labor market is driving up wages.

U.S. producer prices barely rose in February, resulting in the smallest annual increase in more than 1-1/2 years, yet another indication of benign inflation.

Weekly Forecast

This week’s key event for gold traders will be the U.S. Federal Reserve interest rate and monetary policy decisions. Furthermore, Fed policymakers will also offer new economic projections while Chairman Powell will hold a press conference.

Given the recent slew of weak economic data, look for the Fed to leave its benchmark interest rate unchanged. Also look for policymakers to maintain their “patient” approach. Since these conclusions are widely expected, they should have little influence on gold prices.

However, the Federal Open Market Committee Economic Projections are likely to move the gold market. A dovish tone from policymakers will be supportive for gold. If they suggest the central bank will refrain from lifting rates in 2019 then gold prices could soar.

In order to sustain a rally in gold, however, the dollar has to remain under pressure. Renewed optimism over U.S.-China trade relations will be one factor driving the greenback lower. However, unexpected events that lead to safe-haven buying into the greenback will keep a lid on gold prices.

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