Gold Fundamental Forecast – February 10, 2017

Gold prices weakened on Thursday and are continuing to succumb to renewed selling pressure on Friday due to a firming U.S. Dollar. The dollar’s current rally picked up steam on the back of strong U.S. economic data. Furthermore, President Trump hinted that he would reveal his tax plan sometime in the next two to three weeks. This remark jump started the stock market, triggering a resumption of the “Trump Trade”. Greater demand for risky assets encouraged gold speculators to trim their long positions.

April Comex Gold futures closed at $1236.80, down $2.70 or -0.22%.

In economic news, rising U.S. wholesale inventories and an unexpectedly low number of Americans filing for unemployment insurance benefits drove up U.S. Treasury Bond yields which helped underpin the Greenback.

Fed speakers were also busy on Thursday.

Chicago Federal Reserve President Charles Evans told reporters it is reasonable to expect the Fed to raise rates three times this year. However, St. Louis Fed President James Bullard offered a different opinion. He said interest rates can likely remain low through at least 2017, with no clear sense yet of whether the Trump administration’s policies will spark higher inflation or growth.

There were also reports that Germany’s central bank was bringing home gold reserves stored in places like New York and Paris faster than planned. This may because of the lack of confidence in the Euro.

Forecast

April Comex Gold prices are still in an uptrend, but momentum has shifted to the downside with the latest news. Over the short-run, prices should explore the $1214.60 to $1207.10 area. If $1207.10 fails as support then we could see the start of a steep correction with the next major downside target coming in at $1182.60 to $1177.40.

Bullish investors will likely have another concern to deal with within the next two to three weeks, based on comments from President Trump.

Trump said on Thursday that he would give an announcement regarding taxes in the next few weeks.

“Lowering the overall tax burden on American business is big league…that’s coming along very well. We’re way ahead of schedule, I believe. And we’re going to announce something I would say over the next two or three weeks that will be phenomenal in terms of tax,” Trump said at a meeting with airline executives.

Trump’s comments triggered a break in gold as investors drove up Treasury yields and stock prices. This was similar to the reaction we saw the night of the election, not in terms of magnitude, but in terms of clarity. All investors want is clarity and conviction from the President. If they continue to get that then gold prices could suffer as investors would then likely chase higher-yielding assets.