Price of Gold Fundamental Weekly Forecast – Rising Rates Should Make It Hard to Sustain Any Rally

Gold prices finished the week lower as the dollar advanced to a two-week high on expectations of higher interest rates and as geopolitical tensions eased over North Korea, Syria and the potential trade war between China and the United States.

June Comex Gold futures settled at $1338.30, down $9.60 or -0.71%.

The U.S. Dollar was the biggest influence on gold prices, followed closely by increased demand for higher risk assets, or the stock market.

Making the dollar a more attractive asset was a steep rise in U.S. Treasury yields. High U.S. Treasury yields contributed to the rise in the dollar all week. U.S. 2-Year Treasury yields reached 2.453 percent on Friday, the highest level since September 2008. The dollar was also supported by a decline in the Euro, British Pound and Australian and New Zealand Dollars.

The widening of the interest rate differential between U.S. Government Bonds and German Bunds contributed to the weakness in the EUR/USD. Investors also triggered record bets ahead of the European Central Bank meeting next week where policymakers are largely expected to signal no change in policy.

Dovish comments from the head of the Bank of England, Governor Mark Carney, helped pressure the GBP/USD as well as weaker-than-expected U.K. inflation and retail sales data.

Commodity-linked currencies like the Australian and New Zealand Dollars also came under pressure in reaction to a drop in the Chinese stock market.

In other news, U.S. Retail Sales rose more than expected to 0.6%, versus a 0.4% estimate and much higher than the previously reported -0.1%. U.S. Building Permits came in at 1.35 million units, higher than the 1.33 million estimate.

Forecast

This week, gold prices are expected to remain especially sensitive to the U.S. Dollar and Treasury yields as long as the geopolitical events remain under control.

Gold traders will also be watching U.S. economic data to make sure the economy is growing at a strong enough pace to keep the Fed on track for further rate hikes later this year.

Comments from Fed speakers should also be monitored. Last week, Federal Reserve officials signaled further interest rate increases in 2018 based on evidence of steady U.S. growth.

Helping to boost yields was a comment from San Francisco Fed President John Williams who said last Tuesday that he expected U.S. inflation to rise to the U.S. central bank’s 2 percent goal this year and stay at or above that goal for “another couple of years.”

To keep the economy from overheating, he said, the Fed needs to keep raising interest rates.

While Williams appears to be comfortable with the Fed’s ongoing narrative and that probably means the central bank will continue hiking, Charles Evans, president of the Chicago Fed, said he backs “patiently” raising rates while inflation remains low. “I think we have the opportunity to more patiently read and react to the incoming data,” Evans said at a speech in Chicago.

The Fed currently expects to raise rates three times this year, according to the central bank’s latest projections.

In other news, economic data to be reported includes existing home sales on Monday, new home sales on Tuesday, and first quarter GDP on Friday.

Traders will also get a chance to react to a report on consumer confidence as well as durable goods.