Price of Gold Fundamental Weekly Forecast – Bears Pinning Hopes on Successful Reopening of US Economy

Gold closed lower after reaching a multi-year high earlier in the week. Short-term profit-taking fueled the selling pressure. Despite the weakness, the longer-term outlook remained bullish.

The catalysts behind the selling pressure were optimism over whether the coronavirus pandemic was peaking and positive developments over how soon governments will start to ease lockdowns which have crippled business and consumer activity worldwide.

Gold traders, for the most part, shrugged off extremely bad growth data from China and U.S. jobless data which indicated the world is likely already in its worst recession in decades.

Last week, June Comex gold settled at $1698.80, down $62.60 or -3.55%.

Stronger Risk Sentiment Pressures Gold

After touching its highest level in seven years near the start of the week, gold started to retreat as the negative correlation between stocks and gold returned after a six-week absence. Helping to pressure gold and boost equity markets were President Donald Trump’s new guidelines to re-open the U.S. economy and encouraging early data related to a potential COVID-19 treatment.

Global equity markets rallied for a second straight week after Trump laid out guidelines for gradually reopening the coronavirus-hit U.S. economy. Late Thursday, Trump outlined a plan to ease the shutdown in a staggered, three-stage process, but the plan was a set of recommendations rather than orders and left the decision largely up to state governors.

The fact that stocks went up and gold went down is significant because since the steep stock market sell-off in early March, bullion has moved in tandem with stock markets, with investors selling gold to cover margin calls and losses.

Also lifting investor sentiment for risk, a report detailed encouraging data from trials of U.S. drugmaker Gilead Sciences Inc.’s experimental drug remdesivir in severely ill COVID-19 patients.

Weekly Forecast

Gold could weaken this week if risk appetite continues to soar. But keep in mind that stock market investors are trading the flattening of the coronavirus curve and the reopening of the economy. They are not paying attention to the permanent damage the virus is inflicting on the economy.

A series of bad earnings reports and a surge in coronavirus cases could bring stock market investors back to reality rather quickly, and this could trigger the next major rally in gold prices.

Furthermore, gold could soar if President Trump is forced to back off his plans to reopen the economy. This would be major news.

So over the short-run, gold traders should be prepared for volatile, two-sided trading.

Longer-term, gold should remain well-supported by the boatload of fiscal and monetary stimulus that will likely remain in place for at least a year.