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Weekly Gold Fundamental Analysis February 20, 2017

Gold Fundamental Analysis – Forecast for the Week of February 20, 2017

Gold futures traded lower earlier in the week before reversing course to close higher for the third straight week. The market started under pressure because of a strong U.S. Dollar. The Greenback was supported at the start of the week by carryover buying related to President Trump’s proclamation that he would deliver his tax reform plan within two to three weeks.

Gold was also pressured by rising U.S. Treasury yields and a drive by the stock market into new record territory. Stocks were driven higher by Trump, but Treasury yields were pushed higher by robust U.S. economic news and hawkish commentary from Federal Reserve Chair Janet Yellen.

All of that bearishness pushed gold prices lower until mid-week when it bottomed and posted a solid reversal on the daily charts. This price action created the momentum the market needed to move higher for the week and threaten to breakout to the upside through $1246.60.

Gold was primary supported late in the week by a turnaround in the U.S. Dollar, which plunged after Treasury yields began to fall. Some traders said the lack of conviction by Yellen during her second day of testimony before Congress was behind the reversal in interest rates. Others say it was aggressive buying from Europe that turned the gold market around. The Europeans have been buying so-called safe haven assets like gold and U.S. Treasurys in anticipation of an unexpected outcome in the elections in France in early April.

Forecast

Gold traders will continue to take their cues from the movement in the U.S. Dollar this week. As far as reports go, the key U.S. news will be the Fed minutes on Wednesday. They may perhaps reveal more information about the likelihood of a Fed rate hike in March. Hawkish minutes should be bearish for gold, but losses may be limited because of concerns over the French election.

If the minutes are dovish, or reveal nothing that will indicate a rate hike is coming in March, then gold futures are likely to rally.

At the end of last week, several sources are indicating the chance of a rate hike in March is about 26 percent. Given the light report schedule next week, this number is not likely to rise until a few Fed members start to talk it higher. Last week’s two-day testimony from Yellen served no purpose for investors because on the first day she was hawkish, but on the second day she didn’t express the same tone.