Gold Price Forecast: Correction Risks Building, Dollar Remains Crucial
New York (Sept 10) Unless the dollar can secure a sustained recovery with higher bond yields, the overall downside for gold will tend to be limited, although there should be scope for at least a limited retracement and the potential for a sharper correction.
Gold prices have pushed to 12-month highs above $1,350 per ounce as the dollar came under sustained pressure, although there was some slight relief in US trading.
There are important US data releases during the week with consumer prices print on Thursday and retail sales data on Friday.
These data prints will inevitably have a big impact on dollar confidence as markets assess trends in inflation and consumer spending. Inflation expectations have retreated further during the past month and this has been a key factor undermining the dollar. In this context, a low reading should be priced in, limiting the potential for further dollar selling.
In contrast, the last retail sales report was stronger than expected and a weak report would have a greater impact in undermining sentiment.
The latest New York Empire manufacturing data will be released as well as the job openings data.
There should be no comments on policy from Federal Reserve officials given that the blackout period will be in force ahead of the following week’s policy statement.
The impact of hurricane Irma will be monitored closely with expected landfall in Florida during the weekend and there will be further concerns surrounding hurricane Jose which could follow a similar track.
US political developments will also be watched closely with further developments surrounding the debt ceiling and tax reform. It remains possible that the hurricane devastation will trigger a more bi-partisan approach, especially on the debt ceiling which would be an important factor in underpinning risk appetite and the dollar.
Further acrimony in Washington, however, would have a negative dollar impact.
Geo-political risks will remain an important focus even though immediate headlines surrounding North Korea have faded slightly. Any further missile tests from the Pyongyang regime would risk triggering a fresh spike higher in gold prices.
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