Price of Gold Fundamental Weekly Forecast – May Be Ripe for Counter-Trend Rally

Gold futures hit their lowest level since mid-July early in the week, but recovered enough to post a higher close for the week after the Fed delivered a “dovish” outlook on inflation and the direction of interest rates. The technical closing price reversal chart pattern is potentially bullish and could lead to a 2 to 3 week counter-trend rally.

February Comex Gold settled at $1257.50, up $9.10 or +0.73%.

Gold spiked higher after the Fed’s monetary policy announcements as the U.S. central bank kept its interest rate projections steady rather than revising them higher.

The Fed raised its benchmark rate by a quarter point to a range of 1.25-1.50 percent on Wednesday. The central bank projected three more rate hikes in both 2018 and 2019, unchanged from its September forecasts.

The central bank also hiked its GDP estimate from 2.1 percent in September to 2.5 percent. The Federal Open Market Committee also adjusted its inflation forecast for 2018 to 1.7 percent from 1.6 percent.

In other news, U.S. producer price data showed an increase in wholesale inflation, increasing hopes that price pressures may be rising from sluggish levels. According to the Labor Department, the producer price index for final demand increased 0.4 percent last month. The number met economist expectations.

Core PPI was up 0.3%, beating the 0.2% forecast, but coming in lower than the previous month’s 0.4% read.

The Labor Department said on Wednesday its Consumer Price Index increased 0.4 percent last month after edging up 0.1 percent in October. That raised the year-on-year increase in the CPI back to 2.2 percent from 2.0 percent in October. The increase was in line with economists’ forecasts.

Core CPI advanced 0.2 percent in October. As a result, the annual increase in the core CPI slowed to 1.7 percent in November from 1.8 percent in October.

U.S. retail sales increased more than expected in November, helped by a brisk start to the holiday shopping season. Investors read this as a sign of sustained strength in the economy.

The Commerce Department said on Thursday that retail sales rose 0.8 percent last month. Data for October was revised to show sales gaining 0.5 percent instead of the previously reported 0.2 percent rise. Economists were looking for an increase of 0.3 percent in November.

Forecast

The main trend is down on the weekly chart, but the technical closing price reversal bottom suggests the buying may be greater than the selling at current price levels. The trend isn’t likely to change, however, there is room for a 50% retracement.

Taking out $1264.50 will confirm the chart pattern. If this this generates enough upside momentum, we could see a move into $1275.50 to $1284.30. Since the trend is down, sellers may show up on a test of this area.

This week, investors will get the opportunity to react to data on Building Permits, Final GDP and Core Durable Goods Orders.

The price action will be controlled by the usual factors, Treasury yields, the U.S. Dollar and demand for higher risk assets. Traders will also be focused on the passing of the tax reform bill. However, this news may already be priced into the market.

The longer-term fundamentals are bearish, but last week’s price action suggests we may be due for a rally to weekly resistance at $1275.50 before the selling pressure resumes.