Fundamental Forecast for Gold: Bullish

Gold prices are lower for the second consecutive week with the precious metal off by nearly 0.6% to trade at 1320 ahead of the New York close on Friday. Despite the decline, price are poised to close the week well-off the lows after a sharp reversal off support on Thursday.

An announcement by President Donald Trump regarding intentions to levy steep tariffs on imported steel and aluminum sparked a substantial sell-off in broader equity markets with traders finding solace in perceived safety of Gold. The move fuels concerns that retaliation from competing countries could instigate a global trade war. This protectionist take on policy may continue to put a floor under gold prices which are still up more than 1.6% year-to-date. Still, there is an opposing force at play.

The focus now shifts to key central bank rate decisions next week from the RBA, BoC, BoJ and ECB with the release of the February U.S. Non-Farm Payroll figures (NFP) highlighting the economic docket. For gold, the emphasis will remain on the wage growth numbers next Friday as the inflation outlook remains central focus for the Federal Reserve. As it stands, market participants are factoring three rate hikes this year, (starting with this month) and if the inflation picture improve expectations for higher rates may weigh on demand for gold which does not pay a dividend.

It is this tug of war between interest rate expectations and the perceived threat of inflation / geological risk that has fueled four swings of more than 4% on either side over the past two months. Despite the surge in volatility however, the technical levels remain clear with this week’s low marking a precise 100% extension off the highs- so is a low in place?