Price of Gold Fundamental Daily Forecast – ECB Decision, Draghi Comments Will Drive Price Action

Gold prices whip-sawed last week before finishing lower. The price action was driven higher early in the week as investors reacted to a drop in the U.S. Dollar that was fueled by the potential impact of Hurricane Harvey on the U.S. economy. Traders also bought gold after North Korea launched a ballistic missile over Japan’s northerly island of Hokkaido.

December Comex Gold settled the week at $1330.40, up $32.50 or +2.50%.

The precious metal lost ground for a couple of days after strong U.S. economic data bolstered expectations for a solid U.S. jobs report later in the week. Gold prices also retreated after the U.S. Commerce Department revised up gross domestic product to a 3.0 percent annual rate in the second quarter, the quickest in more than two years.

On August 31, gold posted a bullish outside move after unimpressive U.S. economic data failed to boost expectations for another rate increase later this year. According to the Commerce Department, consumer spending came in below expectations and the personal consumption expenditures (PCE) price index excluding food and energy or “core PCE” price index increased 1.4 percent, the smallest gain since December 2015.

Finally, on Friday, gold reached a new high for the week after the U.S. released a disappointing Non-Farm Payrolls report that weighed on the chances of a Fed rate hike. The Non-Farm Employment Change was 156K versus an estimate of 180K. The previous month was also revised lower to 189K. The unemployment rate rose to 4.4%, up from 4.3% and Average Hourly Earnings rose only 0.1% versus a 0.2% estimate.

Forecast

This week, gold investors are going to continue to monitor the movement in U.S. Treasury yields and investor sentiment in the stock market. Falling yields and equity prices will be bullish for gold. Higher yields and rising stocks will be bearish for gold.

This week’s focus for investors will be primarily on the Reserve Bank of Australia interest rate decision and rate statement and the European Central Bank’s interest rate decision, monetary policy statement and ECB President Mario Draghi’s press conference. Traders will be listening for Draghi for clues as to when the central bank will begin trimming stimulus and how he feels about the value of the Euro.

If Draghi comes across as dovish then the Euro will break, the U.S. Dollar will rally and gold prices will likely fall.

A hawkish Draghi will probably send the Euro higher, however, gains may be limited if he tries to talk down the value of the Euro. If the Euro rallies then gold prices will likely follow it higher.