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Data-Dependent Fed Has Gold Prices Eyeing US NFPs, ECB and BoC

Data-Dependent Fed Has Gold Prices Eyeing US NFPs, ECB and BoC

Daniel Dubrovsky, Strategist
Gold Chart

Gold Price Fundamental Forecast: Neutral

  • Gold prices fell as US GDP data lifted the US Dollar and bond yields
  • Patient Fed places the focus for the commodity on US economic data
  • ECB, BoC rate decision may offer the most external volatility for gold

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Gold prices succumbed to selling pressure throughout most of last week, weakened as the US Dollar rose with local government bond yields. The commodity, which has no interest-bearing qualities, tends to underperform in this kind of trading environment. Stronger-than-expected US fourth quarter GDP contributed to this. Technically, XAU/USD broke a major rising trendline, increasing the risk of a bearish reversal.

The week ahead carries a plethora of price-moving events for gold, whose direction will likely be determined by the performance in the greenback. Last week, Fed Chair Jerome Powell made it clear of the central bank’s data-dependent and patient approach for interest rates. This places the focus on how economic conditions continue performing in the world’s largest economy.

Regarding this aspect, domestic data has been tending to underperform relative to economists’ expectations. This has somewhat slowed after last week’s GDP report. If it foreshadows a turnaround in results to come, gold could find itself accelerating its decline as hawkish Fed monetary policy bets increase. So, keep an eye on how ISM non-manufacturing and non-farm payrolls cross the wires ahead.

Outside of the US, watch out for the RBA, ECB and BoC rate decisions which could influence the US Dollar and thus gold prices. The Reserve Bank of Australia, after shifting its bias away from favoring a hike, seems to be in a neutral mode with no changes in rates expected in the near-term. With that in mind, of those three, the latter two will probably be the most interesting to watch.

The European Central Bank must contend with a slowing regional economy just as Italy has fallen into a technical recession and Germany is not far behind one. Gold prices could fall if the greenback finds a boost from Euro weakness on reduced ECB rate hike bets. Meanwhile, the Bank of Canada is in a similar data-dependent situation as the Fed. In fact, overnight index swaps are slightly more hawkish the BoC than its US counterpart. Given the numerous uncertainties, the gold fundamental forecast shall be neutral.

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--- Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

Other Weekly Fundamental Forecasts:

Australian Dollar Forecast – Australian Dollar Faces Busy Data Week, May Struggle For Gains

British Pound Forecast – Positive Brexit Sentiment Feeding Through

US Dollar Forecast – US Dollar May Rise on Economic Data, Global Slowdown Fears

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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