Price of Gold Fundamental Weekly Forecast – Will US-Mexico Deal, Stock Market Rally Reduce Safe-Haven Appeal?

Gold futures finished higher last week, reaching its highest level since February 21. If you want to believe that safe-haven buying drove prices higher then that’s your prerogative. I’m going to stick with a weaker U.S. Dollar as my reason for the strength in the dollar-denominated asset. The greenback was pressured by a plunge in U.S. Treasury yields and rising expectations of a sooner-than-expected rate cut.

Last week, August Comex gold settled at $1346.10, up $35.00 or +2.67%.

Personally, trading the dollar-gold relationship makes sense because of the high correlation. The safe-haven reason is closer to emotional trading in my opinion. However, it all depends on how you look at gold.

If you are consistently long stocks in your portfolio or sit in 75% to 100% long stock positions then yes, gold can be a hedge or a safe-haven asset against a decline in stock.

If you are an investor or a gold speculator then you consider gold an investment. This means you have to look for value and catalysts that could drive prices higher or lower. This means your focus should be on the movement in the assets that primarily drive the direction of gold prices – Treasury yields and the U.S. Dollar.

The primary driver behind gold’s rally was not weaker stock prices, which the business website writers wanted you to believe, but rather the drop in Treasury yields, which made the U.S. Dollar a less-attractive asset. The weakness in the dollar drove up foreign demand for gold. The catalysts behind the moves were dovish remarks from U.S. Federal Reserve Chairman, who shifted from a “patient” tone to one that included standing ready to do what it takes to safe the economy.

Weekly Forecast

I’m looking forward to a volatile week for gold. Volatility in terms of a choppy, two-sided trade.

Continuing to support the long side of the gold market will be a weaker U.S. Dollar. But will the dollar continue to weaken after the U.S. postponed its tariffs against Mexico? After all, wasn’t this one of the reasons why the dollar-weakened and gold prices rose last week? If you take that reason away then gold speculators could be encouraged to book profits.

Furthermore, the chances of a Fed rate cut in June or July could also be dampened by the easing of tensions over Mexico. Treasury yields could rise. If they rise then so will the U.S. Dollar, leading to a drop in demand for gold.

As for demand for risky assets, U.S. stocks have recovered more than 62% of the decline from May. If there is a further need for safe-haven buying, I don’t see it and if gold buyers don’t see it either then this will raise the chances of profit-taking.