Price of Gold Fundamental Weekly Forecast – Market Moving Event Will Be Fed Chair Powell’s Testimony

Gold prices tumbled last week, posting its biggest weekly decline in 2 ½ months, as the U.S. Dollar continued to build a support base slightly above three year lows on the back of higher U.S. Treasury yields.

April Comex Gold futures settled the week at $1330.30, down $2.40 or 0.18%.

Gold was pressured throughout the week by rising Treasury yields which hovered near four-year highs. Hawkish Fed minutes supported the benchmark 10-year Treasury Note. Treasury Bond yields were underpinned by the completion of $258 billion in new supply this week, which was the second largest ever over a three-day period. A weak Euro also pressured gold prices.

The minutes of the Fed’s latest rate-setting meeting in late January were released on February 21. They were perceived as hawkish because they emphasized confidence in the need to keep raising interest rates.

Additionally, buying of physical gold was muted in China because of the week-long Lunar New Year holiday which came to an end on Thursday.

The minutes from the Fed’s January meeting showed policymakers confident in rising inflation. The minutes also showed voting members, as well as the wider group of policymakers, had upgraded their forecasts for the economic outlook since December.

Traders widely interpreted a slightly more upbeat tone in the minutes of the January 30-31 meeting. They appear to have cemented expectations that the Fed will hike rates under its new chief Jerome Powell next month, and that rates will be hiked on at least another two occasions in 2018.

Forecast

Once again the direction of the U.S. Dollar should dictate the tone in the gold market this week. The correlation between the dollar and gold prices has returned to normal after moving a little off-kilter for a couple of weeks due to the stock market volatility.

We’re expecting volatility this week due to the slew of U.S. economic data to be released. The volatility could cause directional price movement, or a choppy, two-sided trade.

Economic data includes Core Durable Goods Orders on Tuesday. It is expected to come in 0.4% higher, below the previously reported 0.7%. Conference Consumer Confidence is expected to improve slightly to 126.2.

Preliminary GDP is forecast at 2.5%, down slightly from 2.6%. Finally, ISM Manufacturing PMI is expected to edge slightly lower to 59.0.

The market moving event this week will be congressional testimony by newly appointed Fed Chair Jerome Powell.

Powell will make his first major appearance Tuesday and Thursday, when he testifies on the economy before congressional committees.

The Fed added to the gold market’s volatility last week when it released its minutes, and could do it again in the coming week as investors are likely to react to Powell’s views on inflation and the possibility of future rate hikes.