Price of Gold Fundamental Weekly Forecast – Plunge in Dollar Could Be Catalyst for Price Surge

Gold futures closed lower last week, but far enough off its low to perhaps warrant some concern from short-sellers. Once again, the key driver of the price action this week will be the U.S. Dollar.

The dollar closed lower last week against a basket of currencies after reaching a one-year high. This wasn’t enough to turn the gold market around, but it did scare some of the weaker shorts out of the market. If the dollar continues to weaken this week then the short-covering in gold should get stronger.

Last week, December Comex Gold settled at $1240.40, down $11.50 or -0.92%.

The Greenback was pushed higher by hawkish testimony before Congress by U.S. Federal Reserve Chairman Jerome Powell on Tuesday and Wednesday then driven lower on Thursday and Friday when President Trump criticized the Fed for raising interest rates.  Additional pressure on the dollar was fueled by Trump’s threat of additional tariffs on China, raising fears of a currency war.

Weekly Recap

Gold prices were driven lower last week by the threat of rising interest rates amid hawkish testimony by Fed Chair Jerome Powell before two U.S. Congressional Committees. Prices were supported somewhat after President Trump criticized the Fed’s monetary policy.

Powell’s testimony supported the U.S. Dollar which pressured dollar-denominated gold. Trump’s comments weakened the dollar which encouraged gold short-sellers to book profits and lighten up their positions. The potentially offsetting comments fueled a two-sided trade in gold prices.

During his testimony, Powell reiterated the Fed’s current message, offering a positive assessment of the economy and indicating that the economy was strong enough to handle gradual rate increases.

Trump criticized the Fed twice, first saying on Thursday, “I am not happy about it. But at the same time I’m letting them (the Fed) do what they feel is best,” the president said. Trump followed-up this comment on Friday by tweeting, “The United States should not be penalized because we are doing so well. Tightening now hurts all that we have done. The U.S. should be allowed to recapture what was lost due to illegal currency manipulation and BAD Trade Deals. Debt coming due & we are raising rates – Really?”

Trump also said he was prepared to place a tariff on everything that China exports to the United States.

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Forecast

This week’s price action in gold will once again be dictated by the direction of the U.S. Dollar. While rising Treasury yields could boost the dollar, additional tweets or comments from President Trump on monetary policy or tariffs on China could limit the dollar’s gains or even drive it lower. This would be supportive for gold prices.

U.S. economic reports could also provide support for the dollar if they lead to higher rates. Key reports this week include Core Durable Goods and Advance GDP.

We can’t say that gold is oversold because no one really knows what that means. It’s a term made up by technicians to explain a rapid turnaround in the market. We can say that gold will go down until it runs out of sellers. We can also say that if enough short-sellers decide to get out of their positions at the same time, we could see a strong spike to the upside. We don’t think there will be true buyers in the market, but any rally will likely be fueled by aggressive short-covering.