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Gold Weekly Fundamental Outlook: Will USD Gains and Returning Optimism Fade?

Gold Weekly Fundamental Outlook: Will USD Gains and Returning Optimism Fade?

2019-01-19 20:00:00
Rich Dvorak, Junior Analyst
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Gold Fundamental Forecast: Bullish

Talking Points:

  • Gold price notches its first weekly decline in over a month
  • US-China trade war developments boosted risk-on sentiment
  • Strong US manufacturing data pushed the USD higher despite Fed turning Dovish

The price of Gold has stumbled lower over the last week as risk-on sentiment caused fading investor demand for the precious metal. Since Gold is often looked at as a safe-haven asset that investors can turn to during times of heightened uncertainty, recent stock market optimism and a strong US Dollar contributed to the shiny metal’s 0.5 percent decline since last Friday.

GOLD PRICE CHART: 30-MINUTE TIMEFRAME (JANUARY 11, 2019 TO JANUARY 18, 2019) (CHART 1)

Gold Price Chart

The drop in Gold’s price over the last 5 trading days snapped the commodity’s streak of 4 consecutive weeks of gains. While Gold was trading sideways for most of the last week, price action on January 18 saw a sizeable 0.8 percent dip in XAUUSD wiping out all gains made over the prior few days.

The decline in Gold was attributable to risk assets rejoicing on reports that China may eliminate its trade deficit with the United States in the latest ploy to decelerate the US-China trade war and boost market confidence. The news comes after an interesting week in the financial markets surrounding Brexit drama, the US government shutdown, and mixed economic developments around the world.

Most notably, weaker than expected data out of China led to the country’s leaders stepping up its willingness to support its worsening economy. Chinese officials announced record-breaking liquidity injections and a lowering of the USDCNY fixing from 6.9709 at the end of last week to 6.7560 on Monday when the poor data was released. Due to the strong correlation between XAUUSD and CNYUSD, this initially helped push Gold higher.

USDCNY, DXY, XAUUSD PRICE CHART: 15-MINUTE TIMEFRAME (JANUARY 11, 2019 TO JANUARY 18, 2019) (CHART 2)

USDCNY,DXY,XAUUSD Price Chart

However, this development was negated throughout the week as positive readings on economic data on US housing, jobless claims, business outlook and manufacturing sent the DXY marching higher despite more dovish remarks from Federal Reserve officials.

Looking ahead to next week, the forecast for Gold remains bullish as the fundamental thesis for potential advances remains in tact. If positive trade talk developments further materialize, this could add support to a faltering Chinese economy and bolster its domestic currency. In turn, this could position Gold for further upside. Moreover, the lingering risks that lower GDP poses to stocks in addition to the risk a dovish Fed poses to the Dollar – both a primary result from an extended US Government Shutdown – is increasingly prevalent. Downside risks to the forecast highlights additional gains in the USD or devaluation in the CNY in addition to further risk-on sentiment resulting in traders overlooking Gold.

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Written by Rich Dvorak, Junior Analyst for DailyFX

Follow on Twitter @RichDvorakFX

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