Price of Gold Fundamental Weekly Price Forecast – US-China Deal Should Weaken Safe-Haven Demand for U.S. Dollar Supporting Gold

Gold put in a choppy performance last week before closing lower for the week. Two catalysts drove the price action last week. One is likely to continue to be an influence. The other is likely to go away at least temporarily, but this could be a bullish development.

Helping to support gold prices were dovish remarks from Fed Chair Jerome Powell. Putting a lid on prices and pressuring it lower was a stronger U.S. Dollar, which rose due to safe-haven buying related to concerns over U.S.-China trade relations.

Last week, February Comex Gold settled at $1226.00, down $3.10 or -0.25%.

Gold prices hit their low for the week on November 28 and rose as much as 1 percent that session as the U.S. Dollar fell after Federal Reserve Chairman Jerome Powell offered little clues on the pace of future interest rate hikes in a cautious speech.

Powell said that the central bank’s benchmark interest rate is “just below” neutral. This was an about face from his comments in early October when he said the Fed was “a long way” from neutral.

While there was “a great deal to like” about U.S. prospects, the bank’s gradual interest-rate hikes are meant to balance risks as it tries to keep the economy on track, Powell said.

Despite the potentially bullish news about interest rates, the rally stalled as investors raised concerns over the outcome of the trade talks between the United States and China scheduled for the week-end. These concerns drove investors into the U.S. Dollar, weakening demand for dollar-denominated gold.

Forecast

With the comments from Fed Chair Powell driving Treasury yields lower and consequently the U.S. Dollar, gold prices are likely to continue to be underpinned this week. However, the news regarding the trade agreement between the U.S. and China should encourage those who bought the dollar as a safe-haven investment to pare positions. This should drive the dollar lower, while increasing demand for dollar-denominated gold. This should drive gold prices higher this week.

Over the week-end, U.S. President Donald Trump and Chinese President Xi Jinping found some common ground at their crucial meeting at the G20 summit in Argentina, agreeing to put their bilateral trade dispute on pause momentarily. According to reports, they struck a deal to hold off on placing additional tariffs on each other’s goods after January 1, while agreeing to continue talks for a permanent end to the major issues.

The Whitehouse reported that Trump and Xi discussed a range of issues including the trade dispute that has left over $200 billion worth of goods hanging in the balance.

“President Trump has agreed that on January 1, 2019, he will leave the tariffs on $200 billion worth of product at the 10 percent rate, and not raise it to 25 percent at this time,” the statement read.

“Both parties agree that they will endeavor to have this transaction completed within the next 90 days. If at the end of this period of time, the parties are unable to reach an agreement, the 10 percent tariffs will be raised to 25 percent,” the statement added.

In the meantime, “China will agree to purchase a not yet agreed upon, but very substantial, amount of agricultural, energy, industrial, and other product from the United States to reduce the trade imbalance between our two countries. China has agreed to start purchasing agricultural product from our farmers immediately,” the White House said.

In Other News…

This week, investors will get the opportunity to react to major reports including ISM Manufacturing PMI, ISM Non-Manufacturing PMI and the U.S. Non-Farm Payrolls report.

Additionally, U.S. Federal Reserve Chairman Jerome Powell is scheduled to testify before Congress and deliver a speech.