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Price of Gold Fundamental Weekly Forecast – Tax Reform Uncertainty Short-Term Bullish

By:
James Hyerczyk
Updated: Nov 19, 2017, 15:24 UTC

After posting a two-sided trade most of the week, the “bend-but-don’t-break” gold market surged to the upside on Friday to post its highest close since

gold

After posting a two-sided trade most of the week, the “bend-but-don’t-break” gold market surged to the upside on Friday to post its highest close since October 16. The market was driven higher by a weaker U.S. Dollar. The catalyst behind the weakness was uncertainty over the progress of U.S. tax reform.

December Comex Gold futures settled at $1296.50, up $18.30 or +1.43%.

According to traders, gold investors are apparently pricing out Trump’s tax reform once again as a result of those two proposals in Congress that are quite far apart from each other.

On November 16, the U.S. House of Representatives approved a package of tax cuts, while a Senate panel advanced its version of the legislation that has President Trump’s backing.

Some traders are saying gold was due for a rally because of oversold trading conditions. Furthermore, the recent sideways action had driven volatility in the gold market down towards record lows with most of the short-term price swings caused by shifting expectations about the outlook for U.S. monetary policy.

Others are saying the rally is going to be short-lived and the upside limited because rising U.S. rates will eventually support the dollar enough to pressure gold prices.

The latter notion was supported last week by strong U.S. inflation data which solidified a December rate hike by the Fed. U.S. Producer Inflation came in at 0.4%, higher than the 0.1% estimate. U.S. Consumer Inflation matched expectations with a reading of 0.1%. However, it continued to rise annually which supported the Fed’s assessment that inflation would rise gradually.

Retail Sales also helped support the case for a rate hike with a surprise 0.2% gain.

Comex Gold
Weekly December Comex Gold

Forecast

The weekly chart indicates gold traders may be trying to build a support base with key support at $1263.80 and $1262.80. The key resistance is the main top at $1308.40.

A trade through $1308.40 is likely to trigger a surge into $1312.60 to $1324.40. A test of this zone could draw the attention of sellers.

This week’s price action is a tough call because of the U.S. Thanksgiving holiday on November 23. Traditionally, this is a low volume, low volatility week.

The holiday-shortened week in Washington likely means there won’t be any activity involving tax reform with the U.S. Senate likely to pick up the issue when it returns to the Capital next week.

In other news, traders will get the opportunity to react to a speech by Fed Chair Janet Yellen on Tuesday. On Wednesday, the U.S. reports on Core Durable Goods. The report is expected to show an increase of 0.4%. The Federal Open Market Committee will release its meeting minutes at 1900 GMT.

The minutes are expected to provide insight into the Fed’s plans to raise rates in December which the market feels is a done deal.

Uncertainty over tax reform is likely to continue to underpin the market, but rising rates are expected to limit gains. This means we’re likely to continue to see a rangebound trade over the near-term. However, due to the low volume and thin trading conditions this week, traders should be prepared for surprise volatility in either direction.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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