Price of Gold Fundamental Weekly Forecast – Rising Rate Expectations Too Much for Gold Bulls
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Gold futures finished the week sharply lower with the bulk of the move taking place on Friday when long investors finally caved to central bank pressure from earlier in the week. The steep sell-off took place only one day after the futures contract reached a one-month high at $1313.00.
August Comex Gold futures settled the week at $1278.50, down $24.20 or -1.84%.
The catalysts leading to the steep plunge appeared to be the dollar’s renewed strength and a surprise negative reaction to President Trump’s announcement of tariffs against China.
The dollar’s renewed strength was fueled by the hawkish U.S. Federal Reserve monetary policy statement.
In a widely expected decision on June 13, the Fed voted to raise its benchmark interest rate for a second time this year. Additionally, in a less unanimous decision, the central bank strongly hinted at another two increases this year. The U.S. Fed Funds rate moved to 1.75 percent to 2.00 percent on the decision.
The Fed also indicated in the update to their quarterly economic forecast that they expected core inflation to reach the Fed’s 2 percent target by the end of the year, and now see economic growth hitting 2.8 percent for the full year. Committee members also cut their forecast for unemployment to 3.6 percent by the end of the year.
On Friday, President Trump announced that the United States will implement a 25 percent tariff on $50 billion of goods from China. Beijing countered with a threat of tariffs of their own. Long traders may have also panicked when gold failed to respond to the news from the International Monetary Fund which said the new tariffs threatened to undermine the global trading system.
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Forecast
Gold’s freefall wasn’t much of a surprise to investors who have watched the market fail to respond to potentially bullish news over the last month including trade war tensions, the political turmoil in Italy, the economic turmoil in Venezuela and the on again, off again then on again meeting between Trump and North Korean leader Kim Jong-un.
Although the chart pattern suggested it was dangerous to short because of the slowly climbing minor trend inside a tight range over a month, it seems the only way to drive the long traders out of the market was with one swift move like we saw on Friday.
The move towards further tightening by the Fed and the ECB down the road proved too much for gold investors to handle. We’re looking for gold prices to continue to drift lower until investors finds value again, which may not come in until $1251.90, its December 12 bottom.