Price of Gold Fundamental Weekly Forecast – Strong U.S. Economic Data May Put Short-Term Cap on Prices

Gold futures rose last week, but actually finished on a weak note. Most of the gains came early in the week in reaction to the dovish tone from the U.S. Federal Reserve, which signaled a potential slowdown in the pace of rate hikes. However, priced eased on Friday as sellers responded to stronger-than-expected U.S. jobs data.

Last week, April Comex gold futures settled at $1322.10, up $17.90 or +1.37%.

Fed’s Dovish Tone Sets Rally in Motion

Gold hit an eight month high last week, supported by a weaker U.S. Dollar after the Federal Reserve said it will be “patient” when making decisions about future monetary policy. The central bank also removed reference to “further gradual increases” to the federal funds rate in its statement, a signal gold traders took to mean that it may slow the pace of interest rate increases in 2019.

Federal Open Market Committee members also mentioned the reduction to the central bank’s balance sheet. The week before, The Wall Street Journal reported the Fed was considering ending balance sheet reduction program. The news helped spark the rally that continued last week.

The Fed also left the benchmark overnight lending rate unchanged between a range of 2.25 percent and 2.5 percent at their January meeting. This move was widely expected.

Profit-Taking on US-China Trade Optimism

Prices topped on Thursday as investors sought riskier assets amid optimism the United States and China may reach a trade deal. The move was fueled by upbeat comments from President Trump. He said on Thursday he will meet with Chinese President Xi Jinping soon to try to seal a comprehensive trader deal as the top U.S. negotiator reported “substantial progress” in two days of high-level talks.

Prices Weighed Down by Robust U.S. Jobs Data

Gold prices dipped at the end of the week, but still managed to hold on to weekly gains. Prices were pressured by a combination of a robust payrolls report and strong manufacturing data from the U.S.

Weekly Forecast

The direction of gold prices this week will once again be determined by Treasury yields, the U.S. Dollar and investor appetite for risk.

The main influence on gold prices over the mid-term will be the dovish Fed policy. This should be enough to underpin prices. However, over the short-run we are going to see periodic price adjustments in reaction to U.S. economic data.

Bullish economic data will increase the chances of a rate hike so this could put a lid on gold prices.

This week’s major report is ISM Non-Manufacturing PMI. It is expected to come in at 57.0, slightly below the previously reported 57.6. Given Friday’s blowout ISM Manufacturing PMI data, I wouldn’t be surprised if this number beats the forecast.

Fed Chairman Jerome Powell is scheduled to speak on Wednesday night. He’s actually in a tough position because the labor market data points toward a strong economy after he told investors last Wednesday that the case for rate increases had “weakened” in recent weeks.