Fundamental Forecast for Gold: Neutral
Talking Points:
- Gold prices has its 1st weekly decline since March
- Rising expectations for 3 more rate hikes and easing geopolitical tensions weigh on prices.
- Focus next week will be on US GDP and Trade Balance.
Still no sign a breakout for Gold with prices inching lower by 0.5% for the week, marking the 1st weekly decline since late March. Renewed buying for the DXY as US treasury yields pick and easing geopolitical tensions see the precious metal failing to hold above $1350 yet again in what has been another rangebound week.
The recovery in the USD-index has begun to pick up the pace, testing the psychological 90.00 level amid the rise in US treasury yields with the 10Y hitting highs of 2.94%, subsequently denting the appeal of the non-interest yielding bullion. The continued rise in global commodity price index (led by oil and aluminum), alongside rising price pressures (Philly Fed prices paid highest since 2011) in the US economy have thus raised inflation expectations, consequently steepening the priced-in Federal Reserve rate hike view. According to the latest CME FedWatch, markets are pricing in a near 44% chance of a further 3 rate hikes by the end of the year.
Source: CME
Easing geopolitical tensions sapped demand from the safe-haven asset with newsflow regarding the latest in Syria on the quiet side, while reports that North Korea are willing to listen to calls of denuclearization on the Korean Peninsula.
Next week’s Economic Calendar
Given that we enter the blackout period meaning that no Federal Reserve members will be speaking on the economy or monetary policy, alongside a light economic calendar until the end of the week, it is likely that gold prices will be trading in somewhat sideways fashion for a large part of the week.
Much of the focus for gold traders will be on the upcoming US data towards the back end of the week. On Thursday we will see the release of the politically sensitive trade balance figure, in which the trade deficit is expected to marginally rise to $75.5bln from $75.4bln. A figure that shows a considerable rise in the trade deficit and in particular with China would unlikely ease the current trade tensions between the US and China, as such an air of caution over trade spats could thus keep the precious metal elevated. At the back end of the week, eyes will be on the first reading of the US Q1 GDP report which is expected to show a sizeable moderation to 2% from 2.9%.
On the daily chart, gold looks to be approaching strong trendline support stemming from December 2017 at $1330, which also coincides the 50 and 100DMAs. To the upside, resistance is seen at $1350, in which the precious metal continues to fail to consolidate above, while strong resistance is situated at $1360, a level which has been rejected 3 times this year. As such, we remain neutral on gold with the yellow metal potentially set on another rangebound week with no clear signs of a breakout.
PRICE CHART 1: GOLD DAILY TIMEFRAME (November 2017-April 2017)
GOLD TRADING RESOURCES:
- See our quarterly gold forecast to learn what will drive prices through mid-year!
- Just getting started? See our beginners’ guide for FX traders
- Having trouble with your strategy? Here’s the #1 mistake that traders make
--- Written by Justin McQueen, Market Analyst
To contact Justin, email him at Justin.mcqueen@ig.com
Follow Justin on Twitter @JMcQueenFX
