Trading & Wealth Management

Gold Fundamental Forecast – February 16, 2017

Gold futures posted a strong rebound rally on Wednesday after the U.S. Dollar reversed down from a one-month high reached after the U.S. reported stronger-than-expected economic news.

April Comex Gold futures closed at $1233.10, up $7.70 or +0.63%.

Despite the strong economic data, the price action suggests that traders may feel the Fed is still not ready for a March rate hike.

In economic news, the consumer price index (CPI) rose 0.6 percent in January, above the expected 0.3 percent increase. Retail Sales rose 0.4%, beating the 0.1% estimated, but coming in below December’s read of 1.0%.

On Wednesday, the Labor Department reported that U.S. consumer prices recorded their biggest increase in nearly four years in January as households paid more for gasoline and other goods, suggesting that inflation pressures could be picking up.

In the 12 months through January, the CPI increased 2.5 percent, the biggest year-on-year gain since March 2012. Economists had predicted an annual rate of inflation at 2.5 percent.

In other news, the Empire State Manufacturing Index also beat expectations with a reading of 18.7. However, Capital Utilization came in at 75.3%, slightly below the estimate and the previous read of 75.6%. Industrial Production also disappointed with a minus 0.3% showing. Nonetheless, investors were primary focused on the retail sales and inflation data.

Forecast

On Tuesday, Federal Reserve Chair Janet Yellen said that delaying interest rate increases could leave the Fed’s policymaking committee behind the curve. This remark helped pressure gold prices.

On Wednesday, in her second day of testimony before Congress, Fed Chair Janet Yellen acknowledged that the economy is weak, but said Fed policies have been a help, not a hindrance.

These two remarks by Yellen appear to be offsetting which may be the reason behind the dollar’s break from highs and gold’s reversal to the upside.

Technically, gold’s reversal is bullish on the charts. If the momentum created by the move continues then buyer should easily take out resistance at $1236.60. If they can accomplish this with rising volume then we may see a retest of the recent top at $1246.60.

With Yellen’s testimony out of the way and the inflation data, traders are likely to react to the European elections and Trump’s policies over the near-term. Both could provide support.

Reports on Thursday include U.S. building permits, the Philly Fed Manufacturing Index, weekly unemployment claims and housing starts.