Fundamental Forecast for Gold: Neutral

Gold prices are lower for a second consecutive week with the previous metal off 1.26% to trade at 1272 ahead of the New York close on Friday. The losses come amid continued strength in the greenback with the Dow Jones FXCM U.S. Dollar Index (Ticker:USDOLLAR) already up 2.45% off the monthly / yearly low made on May 3rd. The rally is approaching technical resistance heading into next week, and could offering a possible reprieve to gold prices with the focus falling back on the outlook for monetary policy.

Retail Sales released on Friday topped expectations and while the print alleviates some concerns over the health of the consumer, the print does little to move the needle on central bank policy moving forward. If anything, it does leave the door open with the focus now shifting towards more significant data next week. Traders will be closely eyeing the release of the April U.S. Consumer Price Index (CPI) and minutes from April 27th policy meeting where we hope to get a more detailed picture of where the committee members stand as it pertains to the appropriate timing of future interest rate hikes. Keep in mind that of the Fed’s dual mandate, inflation remains the laggard; lending added significance to the current pace of price growth.

Consensus estimates are calling for the core reading on inflation, which strips out food & energy, to print at 2.1% y/y, down from a previous read of 2.2% y/y. With a weaker read on NFPs earlier in the month and growing concerns over softness in global equity markets, the bar may be high for the committee to move forward with the normalization cycle. Fed fund futures are now pricing in just a 4% chance for a hike in June with no material expectations seen until December of this year. That said, look for softness in U.S. data to limit this recent rally in the dollar, with further deterioration in interest rate expectations to benefit the gold prices.