Price of Gold Fundamental Weekly Forecast – Fed Could Be Source of Volatility This Week
Gold prices retreated on last week on fears of European Central Bank and U.S. Federal Reserve tightening. Rising German Bund and U.S. Treasury Bond yields also made gold a less-desirable investment. This lowered demand for gold because it does not pay interest or a dividend.
Gold traders were spooked on Friday after an ECB official called for scaling back the bank’s stimulus program, although losses were limited with the release of weaker-than-expected U.S. economic data. ECB board member Sabine Lautenschlaeger made the most explicit call so far from an ECB policymaker for paring the bank’s 2.3 trillion Euros money printing program.
Despite weaker U.S. economic data reducing the chances of a rate hike this year, bearish gold traders noted that the U.S. Federal Reserve is still on-track to begin trimming its balance sheet after next week’s September meeting.
In other news, gold prices initially rose in response to the North Korean missile launch and London attack, but investors eventually shrugged off this news and the bearish U.S. economic data.
Influenced by a Stronger U.S. Dollar
Gold was also influenced by a stronger U.S. Dollar. It started the week sharply higher after Hurricane Irma left a path of destruction in its wake and sold-off after U.S. inflation showed improvement.
According to Bloomberg, Irma is expected to cost over $50 billion dollars for Florida. However the dollar strengthened because traders were pricing in close to $200 billion in actual damage.
The dollar also rallied after the U.S. Labor Department said its producer price index for final demand increased 0.2 percent, missing the 0.3 percent estimate, because the number was an improvement over July’s 0.1 percent loss.
However, the Greenback lost ground against a basket of major currencies on Thursday even though data that showed a faster-than-forecast increase in domestic consumer prices boosted generally depressed expectations for another U.S. rate hike later this year.
Forecast
Outside events that could influence gold prices are escalating events in North Korea and risk sentiment in the U.S. equity markets which are trading at or near all-time highs.
Economic data includes Building Permits and Weekly Unemployment Claims.
The biggest influence on gold price should be the Federal Open Market Committee’s interest rate decision, monetary policy statement, economic projections and press conference.
Gold traders expect the Fed to leave interest rates at <1.25%. However, the reaction in the market will come from the central bank’s projections, monetary policy statement and any comments from Fed Chair Janet Yellen in her press conference. A hawkish Fed will be bearish for gold, a dovish Fed bullish.
The Fed is also expected to announce the start of its plan to begin trimming its balance sheet.
This article was originally posted on FX Empire
