Price of Gold Fundamental Weekly Forecast – Low Inflation Data Should Spike Prices Higher

James Hyerczyk
Gold Bars and Dollar

Gold futures are trading higher on Friday, putting the market in a position to finish the week and the month with solid gains. It took a while for gold prices to get rolling to the upside in May. The fundamental events were there, but buyers first had to establish support and a value zone.

The price action indicates that the value area is a technical retracement zone at $1280.80 to $1261.70. The support is a pair of bottoms at $1273.20 to $1274.60.

Gold is being supported today by lower demand for risky assets, a plunge in Treasury yields and most of all, a weaker U.S. Dollar. The catalysts behind the price action are the fear of a global recession and a U.S. Federal Reserve interest rate cut.

After a relatively quiet week, upside momentum for gold futures is picking up on Friday after President Trump vowed to levy tariffs on all Mexican imports, driving up concerns over a global economic slowdown.

The new threats against Mexico, coupled with a series of weak U.S. economic data and the prolonged U.S.-China trade dispute have driven investors into Treasurys, driving down yields as they increased bets the Fed will be forced to cut rates later this year.

At 09:45 GMT, August Comex gold is trading $1302.40, up $10.00 or +0.78%.

Daily Forecast

The price action in gold is impressive, however, in order to continue the upside momentum, buyers are going to have to stay away from the U.S. Dollar.

The market is sending a strong message to the Fed to cut rates. So far the Fed has remained quiet since it is data dependent. It knows that trade disputes and tariffs aren’t good for the economy, but it’s not likely to act until it sees their effects on the labor market and inflation. This means next Friday’s non-farm payrolls report may be the most important report of the year.

On Thursday, a report from the Commerce Department showed that U.S. inflation was much weaker than initially thought in the first quarter amid a sharp slowdown in domestic demand. This news could put additional pressure on the U.S. central bank to cut interest rates, especially since the economy is expected to slow in the second quarter.

On Friday, traders will get the opportunity to react to the April Core PCE Index. The report is expected to come in at 0.2%.

In March 2018, inflation hit the Fed’s 2% target for the first time since April 2012. Friday’s report may show that inflation is now at 1.5% on a year-over-year basis. Hitting this number will give the Fed more ammunition to possibly cut rates and that would be bullish for gold futures.

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