Price of Gold – Fundamental Forecast, March 21, 2017

Gold prices continued to firm on Monday in reaction to last week’s less-hawkish U.S. Federal Reserve monetary policy statement and economic projections. Although the central bank raised its benchmark interest rate 25 basis points, this news was essentially priced into the market.

Investors were surprised, however, when the Fed said it would raise rates “gradually”. Additionally, the central bank stuck with its forecast for three rate hikes this year. Going into the central bank meeting, investors had priced in the possibility of four rate hikes.

Gold prices were being capped by the prospect for more frequent rate hikes, but have rebounded since March 15, hitting a two-week high on Monday. The rally was helped by a weaker U.S. Dollar, which hit a 6-week low. This helped increase foreign demand for the dollar-denominated gold market.

June Comex Gold futures finished the session at $1237.20, up $4.00 or +0.32%.

Forecast

There were no major U.S. reports on Monday, but several Fed speakers offered their assessments of the economy and the decision to raise rates.

According to Chicago Fed President Charles Evans, the central bank will wait until June to decide on the next rate hike.

“June is a time where we will obviously have two meetings to access how financial markets have evolved, everything happening in Washington and the likelihood of that, and the data evolving [including] whether or not prices are going up,” he said.

Last week’s lone dissenter on the Federal Reserve Monetary Policy Committee, Minneapolis Fed President Neel Kashkari said the voted against a rate hike last week because he wanted to see more inflation in the U.S.

Philly Fed President Patrick Harker said that it’s OK if inflation overshoots the Fed’s inflation target as the labor market tightens. “Obviously there’s a lag to inflation. We have to be careful not getting behind the curve,” said Harker.

Over the near-term, the return of inflation and a range of uncertainties, including European elections and protectionism should be supportive for gold prices.

The problem at this time is technical in nature. If buying volume doesn’t increase enough to drive prices through $1233.10 to $1241.30 then we could see a near-term pullback into $1218.20 to $1213.40. In order to keep the counter-trend rally going, buyers are going to have to decide whether to buy strength or wait for a pullback into a value area.