Price of Gold Fundamental Weekly Forecast – Sudden Strength in Dollar Pressuring Gold Prices

After consolidating most of the week, gold futures dropped sharply on Friday in reaction to higher Treasury yields and increased appetite for risky assets. The catalysts behind move were reports that the United States and China were considering offering concessions to move the two economic powerhouses toward a deal that would end the on-going trade dispute.

Last week, the February Comex Gold settled at $1282.60, down $6.90 or -0.54%.

Rising yields helped make the U.S. Dollar a more attractive asset. This pressured foreign demand for dollar-denominated gold. Increased appetite for risk drove stocks higher, reducing gold’s appeal as a safe-haven asset.

Treasury yields and stocks rose on Friday after a report from CNBC that China had offered a six-year increase in U.S. imports during recent trade talks. Bloomberg News also reported that the deal would aim to reduce the annual U.S. trade deficit to zero by 2024.

On Thursday, it was reported that Treasury Secretary Steven Mnuchin was considering the idea of easing tariffs on Chinese goods as a means of moving along the negotiations for a new trade deal. The reaction to this news was cautious, however, because the report was refuted by a senior administration official who told CNBC that there is “no discussion of lifting tariffs now.”

Economic Reports

It was a quiet week as far as economic releases were concerned. In the U.S., the Producer Price Index fell 0.2%, more than expected. This news actually supported gold prices earlier in the week. This news also confirmed the Fed’s assessment of muted inflation. It also backed the Fed’s plan to take a pause in raising rates although the market now seems to think that a trade deal will put the central bank back on track to tighten further.

Forecast

This week, the price action in gold will continue to be driven by the movement in U.S. Treasury yields and appetite for risk. Rising yields and stock prices should dampen demand for gold. Investors are likely to continue to focus on events regarding U.S.-China trade negotiations although we may see some increased concerns over the partial U.S. government shutdown.

Technically, traders may try to pressure sell stops under the recent low at $1278.10. If successful, they could trigger a break into $1268.50. All bets will off for a steep break if buyers can recapture $1289.20.