Gold Prices Weekly Forecast: US Employment Data Will Be Crucial
London (May 28) Trends in the dollar and risk appetite will dominate in the week ahead. Overall, gold prices are liable to drift lower unless Fed officials give a clear signal that interest rates will not be increased at the June meeting, but political risk will remain an important wildcard.
Gold prices secured net support for the week as the dollar was subjected to net losses. US and global bond yields also declined which lessened the opportunity cost of holding gold and prices pushed to 1-month highs above $1,265 late in the week.
There are important US economic data releases during the week, which will have a significant impact on gold prices. The transmission of pricing pressure through trends in the dollar and fixed-income markets will be crucial for direction.
The latest consumer confidence data will be released on Tuesday, together with the PCE inflation data while the ADP employment release is due on Wednesday.
The ISM manufacturing release is due on Thursday, together with the jobless claims data. The most important release will be the Friday employment report with data on non-farm payrolls, unemployment and average earnings.
Although minutes from May’s FOMC meeting were considered less hawkish than expected, there has actually been a hardening of expectations surrounding the June Fed meeting with futures markets suggesting that the chances of a rate increase have increased to near 88%.
The chances of more than one increase over the remainder of 2017 have, however, held just below 50%.
Generally subdued economic data would tend to trigger fresh doubts surrounding the chances of a June rate hike and there would also be a downgrading of expectations for medium-term rate increases.
If, in this environment, the dollar comes under sustained selling pressure and Treasury yields decline, there would tend to be upward pressure on gold prices.
Notably strong data, especially for the employment report, would provide dollar support and trigger selling pressure on gold.
Comments from Federal Reserve officials will be monitored closely during the week, especially as the blackout period ahead of the June policy meeting will come into force on Saturday June 3rd. If key Fed members want to shift market opinion surrounding the June decision, they will need to comment during the forthcoming week.
The latest Eurozone inflation data will be watched closely during the week with the German data due for release on Tuesday following by the overall Eurozone flash reading due on Wednesday.
Commentary from ECB President Draghi will be monitored closely on Monday for any hints on the June policy decision. Any hints over a more hawkish policy in June would tend to undermine gold, although the impact would probably be offset by a stronger Euro.
Oil prices will also be an important focus during the week after the sharp decline seen following the OPEC Ministerial meeting. There will be mixed implications from changes in oil prices, but a rebound would tend to undermine gold prices amid expectations of higher global bond yields.
US political developments will continue to be monitored closely in the short term, especially as President Trump will return to the US after the overseas tour. This will tend to renew the focus on the investigation into links between Trump’s campaign term and Russian officials ahead of the 2016 Presidential election.
If Trump comes under further pressure, there will tend to be fresh support for gold.
Source: EconomicCalendar
