Gold Prices Weekly Forecast: Selling On Rallies, Bond Markets Remain Pivotal

New York (May 13)  Trends in the dollar and bond yields will continue to dominate gold in the short term. Consolidation is the most likely outcome in the week ahead with strong selling interest on rallies.

Gold prices moved sharply lower to 8-week lows near $1,215 per ounce in the first half of the week before regaining ground as the dollar stumbled and bond yields declined.

 The main catalyst for the reversal was weaker than expected US CPI data while the headline retail sales report was also disappointing. Gold settled just below the $1,230 level, little changed for the week as a whole.

US economic data releases in the week ahead are unlikely to have a major impact during the week unless there is a series of weak releases. The latest housing starts and industrial production data will be released on Tuesday with the jobless claims data on Thursday.

The New York Empire manufacturing index will be released on Monday and the Philadelphia Fed index is due on Thursday.

Any evidence of a sustained slowdown in the regional manufacturing surveys would trigger fresh concerns surrounding the wider economic outlook and potentially provide support to gold prices.

Comments from Fed officials will continue to be monitored closely, although FOMC members are unlikely to see any urgent need to adjust market expectations surrounding the June rate decision.

US political developments will be watched closely in the week ahead. The underlying tensions in Washington after Trump’s firing of FBI Director Comey will be monitored closely, especially given the potential impact on tax reforms and Trump’s ability to secure support within Congress.

Any intensification of tensions surrounding the Administration and investigation into claims of Russian interference in the Presidential election would tend to put upward pressure on gold prices.

Trade policies will also be an important focus with the US trade agenda likely to accelerate now that Lighthizer has been confirmed as US Trade Representative by the Senate. The debate surrounding NAFTA will certainly be an important focus and could have wider ramifications.

Any commentary from US officials on the dollar policy will also be an important focus during the week ahead.

Uncertainty will be an important aspect, especially given the risk that President Trump will look to deflect criticism surrounding the Russian investigation by making headline announcements in other areas, which may induce volatility across asset classes.

Trends in energy prices will be an important focus ahead of the OPEC May 25th Ministerial meeting with rhetoric from oil producers inside and outside of OPEC watched closely. Any downward pressure on oil prices would tend to have some positive impact on gold prices.

Overall trends in bond yields will be an important focus during the week with inflationary pressures an important element. Upward pressure on yields on expectations of underlying central-bank policy normalisation would be important in undermining gold support. Bond yields, however, fell sharply on Friday on fresh doubts surrounding the US outlook and further downward pressure on yields would underpin gold.

Underlying trends in risk appetite will also be an important underlying focus with a notable focus on equity markets. The underlying tone remains strong with US equity markets close to record highs and European bourses at 21-month highs.

There are, however, important concerns surrounding valuations and the pressure for an underlying correction. Any sustained decline in equity markets would undermine risk appetite and put upward pressure on gold.

Source: EconomicCalenedar