Price of Gold – Fundamental Forecast, May 1, 2017

Even the threat of military action against North Korea couldn’t attract enough buyers to sustain Monday’s early gains. Over the week-end, the North Koreans thumbed their noses against President Trump and insulted China when they tested another missile. Although the test failed on the launch, the attempt drew the ire of Trump and other national leaders.

The early price action in the gold market suggests that the action by North Korea was a non-event, at least to gold investors.

Helping to pressure gold early Monday was the news that congressional leaders reached a spending deal to keep the government running through the fall. There was a series of minor issues, but those have all been worked out, so a shutdown scenario has been averted.

This news helped boost the U.S. Dollar which turned gold lower after it opened higher in response to the North Korean incident.

After selling off early last week, gold consolidated for three days, following the release of Trump’s long-awaited tax reform plan. When the new tax plan failed to deliver as promised, the dollar weakened, stocks old off and gold prices firmed.

We’re going to continue to monitor this relationship today, however, we’re also going to keep North Korea on the forefront because the market can turn rather quickly if there is any escalation in the region.

The economic data today is heavily slanted towards the U.S., starting with a speech by Treasury Secretary Steven Mnuchin. The topic is unknown at this time, but he could move the markets if he talks about trade policy and tax reform.

Later in the session, investors will get the opportunity to react to the latest data on Core PCE, Personal Spending and Personal Income. The Core PCE is the Fed’s favorite inflation indicator. Personal spending is important because low spending hurt GDP last quarter.

Additionally, traders will get the chance to react to Final Manufacturing PMI, ISM Manufacturing PMI, Construction Spending and ISM Manufacturing Prices. The ISM Manufacturing PMI report is expected to come in at 56.6, down from the previous 57.2.

Setting aside North Korea unless it becomes an issue, gold is likely to be controlled by demand for risky assets. So if stocks rise, gold is likely to feel pressure.

Traders will also be preparing for the Fed announcement on Wednesday. Right now there is about a 64 percent chance of a rate hike, nonetheless, it may be enough to keep a lid on gold.

The charts indicate there is more room to the downside than to the upside so if $1260.70 fails then don’t be surprised if there is an acceleration to the downside.