Price of Gold Fundamental Weekly Forecast – Recession Fears Could Outweigh Fed’s Rate Decision

Gold futures closed higher for the first time in six last week as a sharp break in U.S. Treasury yields and a drop in the U.S. Dollar from a multi-year high bolstered non-yielding bullion’s safe-haven appeal as economic risks persisted.

The market was trading flat for several days before plunging to $1696.10, slightly above its March 30, 2021 main bottom at $1694.50. The price level proved to be attractive to investors, triggering the daily technical closing price reversal bottom that eventually led to a weekly closing price reversal bottom.

Although the potentially bullish chart pattern was formed on Thursday, it wasn’t confirmed until Friday with the help of bearish U.S. economic news.

On Friday, December Comex gold futures settled at $1745.30, up $23.10 or +1.32%. The SPDR Gold Shares ETF (GLD) finished at $160.67, down $10.29 or -6.40%.

Weekly Recap

After a prolonged move down due to expectations of a massive rate hike by the U.S. Federal Reserve on July 27, gold prices stabilized as traders reduced the chances of the Fed going supersized with a full basis point rate hike.

Expectations for a 100 basis points rate hike by the Fed at its policy meeting stood at about 29% on Friday, according to CME’s FedWatch Tool after reaching as high as 80% the week before.

In addition to the drop in Treasury yields and a huge rate hike by the Fed, the dollar eased after the Euro jumped against the greenback, following a more than expected interest rate hike by the European Central Bank (ECB).

Concerns over U.S. economic also put a dent in investor sentiment after the release of more downbeat economic data.

On Friday, a preliminary reading on the U.S. PMI Composite output index – which tracks activity across the services and manufacturing sectors – fell to 47.5, indicating contracting economic output. It’s the index’s lowest level in more than two years.

The previous session, weekly initial jobless claims rose the week-ending July 15 to the highest in eight months, while a gauge of factory activity slumped in July, offering further indications that the U.S. economy is slowing as rising interest rates and high inflation weigh on spending power.

Weekly Outlook

All eyes will turn to the Federal Reserve this week with the start of a two-day policy meeting on July 26-27. Gold traders will be assessing whether the U.S. central bank will hike interest rates by 75 basis points or the more aggressive 100 basis points. However, traders will all be watching for comments about the chances of an economic slowdown or a recession, and what the central bank plans to do at its September meeting.

Technically speaking, the key level to watch is the March 30, 2021 main bottom at $1696.10. If buyers continue to defend it, we could see a short-covering rally into at least $1798.50 to $1822.60. If sellers take it out with heavy volume, the market could plunge into the April 1, 2020 main bottom at $1618.00.