Price of Gold Fundamental Weekly Forecast – Shift in Fed’s Tone Could Drive Market Back to $1251.40 to $1238.80

Gold prices finished higher last week, but that’s not the story. Early in the week, gold prices were supported by falling U.S. Treasury yields, heightened stock market volatility and fears of a global economic slowdown. Investors were also buying the precious metal because they were afraid the U.S. Federal Reserve may have made a policy error by tightening too fast. All of these factors and a weaker U.S. Dollar helped make gold a most desirable safe-haven asset, but all of that came to a screeching halt on Friday.

For the week, December Comex gold finished at $1286.20, up $3.20 or +0.25%.

Gold closed higher alright, but that was after it fell $22.30 from its highest level since June 19 on Friday at $1300.40. The catalysts behind the selling pressure were a stronger-than-expected U.S. jobs report and dovish remarks from Fed Chairman Jerome Powell. The jobs data lessened fears that the economy was slowing down or heading into a recession. Powell’s comments relieved fears that the Fed may be by tightening too fast.

A rise in Treasury yields also made gold a less-desirable investment because the precious metal doesn’t pay interest. U.S. Treasury yields jumped on Friday, triggering a massive break in the Treasury notes and Treasury bonds futures markets. The move was not only fueled by massive monthly jobs growth which blew away the estimates, but also a bigger-than-expected rise in wage growth.

The number of jobs added to the economy in December surged more than expected, and the figures from October and November were revised higher. The Unemployment Rate rose, but this was because the number of people looking for jobs increased. More importantly for Treasury investors, wages jumped 3.2 percent from a year ago, gaining 11 cents between November and December, an increase of 0.4 percent. That beat the Wall Street estimate for a 0.3 percent increase.

Gold sellers were also driven by a dramatic shift in the tone of U.S. Federal Reserve Chairman Jerome Powell, who reversed his hawkish tone from December to dovish. Powell triggered an acceleration in the selling pressure when he said, “As always, there is no preset path for policy.” “And particularly with muted inflation readings that we’ve seen coming in, we will be patient as we watch to see how the economy evolves.”

Forecast

Gold prices will continue to weaken this week if Treasury yields continue to rise and increased appetite for risk drives the stock market higher. The first downside objective this week is $1268.50. This is followed by $1258.60. The primary target zone is $1251.40 to $1239.80.

The major U.S. reports this week are the ISM Non-Manufacturing PMI report on Monday and Friday’s U.S. Consumer Inflation Reports.

The Fed minutes will be released on Wednesday and Fed Chair Powell is scheduled to deliver another speech on Thursday.

Gold traders had a nice run since the Fed delivered a hawkish message on December 14, but Powell changed that on Friday so prices will have to be adjusted to the downside.