Price of Gold Fundamental Weekly Forecast – U.S.-North Korea Meeting to Take Backseat to Fed Decisions

Gold futures closed higher last week, underpinned mostly by a weaker U.S. Dollar. Volume was relatively light as investors prepared for a series of upcoming events including the G-7 meeting over the week-end and next week’s meeting between U.S. President Donald Trump and North Korea President Kim Jong-un on June 12. The U.S. Federal Reserve will issue its monetary policy decision on Wednesday. Thursday will feature the European Central Bank and early Friday, the Bank of Japan will release its monetary policy statement.

August Comex Gold futures settled at $1302.70, up $3.40 or +0.26%.

There was only one major report last week, U.S. ISM Manufacturing PMI came in better than expected at 58.6 versus a 57.9 estimate.

Helping to put a lid on the gold market last week was increased demand for higher risk assets. The benchmark S&P 500 Index settled at 2,779.03, up 1.6%. The blue chip Dow Jones industrial Average finished at 25,316.53, up 2.8% and the tech-based NASDAQ Composite closed at 7,644.91, up 1.2%.

Steady interest rates also limited the market’s gains with the 10-year Treasury note yield closing at 2.95%, up 0.04%.

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Forecast

Economic data will be robust this week, highlighted with May’s inflation report Tuesday, a rate decision from the U.S. Federal Reserve Wednesday, and retail sales Thursday.

The Consumer Price Index is expected to show a monthly increase of 0.2%. Core CPI is expected to rise 0.1%. Producer inflation is expected to jump 0.3%, up from April’s 0.1% rise. These reports are not expected to change the outcome of the Fed’s rate decision on Wednesday. The central bank is widely expected to raise its benchmark rate 25 basis points.

Retail Sales are expected to come in at 0.4%, up from 0.3%. Core Retail Sales are expected to rise 0.3%, matching the previous gain.

Gold traders have fully-priced in the June rate hike. However, there is still some uncertainty over future rate hikes. Traders aren’t sure if there will be one or two more rate hikes after that. Gold traders will be looking for clues about the Fed’s next interest rate moves in the Federal Open Market Committee’s Monetary Policy Statement, Economic Projections, and Press Conference.

As far as Trump’s meeting with Kim Jong-un, it’s too hard to tell how the outcome will influence gold prices. Obviously, if there is a so-called “peace agreement” then this will diminish gold’s appeal as a safe haven asset. However, I think gold traders will be paying closer attention to the Fed than to the meeting. Once again, the direction of Treasury yields will exert the most influence on the direction of gold prices.

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