Gold Prices Weekly Forecast: Risk Conditions Dominate, Limited Scope For Gains
New York (May 21) There should be little scope for further dollar weakness on economic grounds, which will tend to cap further gains in gold prices. Developments surrounding risk appetite will, however, continue to have an important impact during the week ahead and any fresh spike in risk aversion would trigger temporary gains for gold.
Gold prices rose steadily over the week with support from a weaker dollar and declining bond yields with a spike higher as political difficulties for President Trump intensified. There was, however, a retreat from 2-week peaks above $1,260 as risk appetite recovered.
Political risk will inevitably be a very important focus during the week, especially as there will be a crucial linkage with financial risk. Movement in gold prices will be affected strongly by shifts in defensive demand.
The investigation into allegations surrounding Russian involvement with the 2016 US Presidential election will continue.
Crucially, President Trump’s involvement in the investigation and whether there was any attempt to undermine the investigation will also continue to have important market implications.
The appointment of a special counsel to oversee the investigation is likely to lead to a scaling back of congressional hearings into the matter and this may prevent next week’s planned testimony before the Senate intelligence committee by former FBI Director Comey.
If Comey does testify, there is the risk of a substantial market impact.
The investigation will continue to have an important impact on risk conditions. If Trump appears to be facing even greater difficulties and a greater risk of impeachment, gold prices will gain fresh support in tandem with weakness in equity markets.
If, however, there appears to be a reduced threat to the Administration, the net impact would be to undermine defensive gold support.
As far as data releases are concerned, the main US economic data releases are concentrated late in the week with the first-quarter GDP revision and durable goods orders data due on Friday. These two data points follow the regular jobless claims data on Thursday and existing home sales data, which is scheduled for release on Wednesday.
The Federal Reserve minutes from May’s policy meeting are likely to be the most important scheduled economic event of the week.
Markets will be looking for any further guidance on the likely rate decision in June and whether there is a clear indication within the minutes that the FOMC expects to move ahead with a hike at the next meeting.
Any comments from Fed speakers will also need to be watched very closely given the potential guidance for the June policy decision. At this stage, futures markets are pricing in around a 70% chance that interest rates will be increased at the June meeting.
If the FOMC wants to shift these expectations, heavyweight speakers could make comments during the week.
If expectations surrounding a Fed tightening remain intact or harden, there will be reduced underlying support for gold. Any hint, however, that a June rate hike is off the table would be likely to trigger fresh support for precious metals.
Elsewhere, the North Korean situation will continue to be an important background focus with fresh support for gold if tensions intensify.
Source: EconomicCalendar
