Gold Prices Weekly Forecast: Bond Market Developments Crucial
New York (May 6) There are likely to be mixed influences from currency markets during the week ahead. If global bond yields are stable or higher and risk appetite remains firm following the French election, gold is likely to register further net losses.
The immediate market impact in Asia on Monday will come from the French Presidential election on Sunday. Exit polls will be published at 14.00 ET and, unless the result is very close, the result should be clear before the gold market re-opens.
Gold will tend to lose some support if Macron is confirmed as winning the election, although the result should be close to being fully priced in, which will limit the impact. A firm Euro tone against the dollar would also tend to curb strong gold buying.
There will be very strong gold buying of there is an unexpected victory for Le Pen amid a serious spike in risk aversion.
There are only limited US data releases during the first half of the week. Most attention will be on the consumer prices and retail sales data due for release on Friday. Weak data, especially for inflation, would tend to underpin gold prices while a strong rebound in sales would tend to weaken demand for precious metals.
Underlying trends in commodity prices will be watched closely during the week, especially after sharp losses this week. A slide in commodity prices to some extent reflects a shift back into more orthodox asset classes given expectations that the central banks are gradually moving towards a normalisation of monetary policy. In this context, a downturn in commodity prices would tend to undermine gold with a reduction in defensive support.
There is, however, also a risk that commodity prices are coming under pressure due to fears that the global economy is weakening again. In this environment, it is more likely that weakness in commodity prices would underpin gold.
Bond markets will be a key focus during the week with gold significantly more vulnerable to selling pressure if there is upward pressure on global yields. In contrast, downward pressure on yields would tend to underpin gold and certainly make it easier to resist losses.
Equity markets will also be important with gold support notably weaker if stocks continue to gain ground.
Overall geo-political trends will continue to be monitored closely in the week ahead. Although attention on North Korea has faded to some extent, there are still very important stresses and any fresh increase in tensions would tend to support gold.
The net risks look to be skewed towards modest net gold losses in the week ahead.
Source: EconomicCalendar
