Price of Gold Fundamental Weekly Forecast – Overextended Rally: Needs Weaker Dollar to Sustain the Move.

The price action in gold this week will once again be controlled by the direction of the U.S. Dollar. The dollar will be largely influenced by President Trump’s State of the Union speech on Tuesday Night.

Gold futures continued to push towards the highs of mid-2016 and threatened to break out to levels not seen since 2013 last week in response to a weaker U.S. Dollar.

Forecast

The price action this week will once again be controlled by the direction of the U.S. Dollar. The dollar will be largely influenced by President Trump’s State of the Union speech on Tuesday, January 30 at 9:00 Eastern (0200 GMT Wednesday). Once again, a weaker dollar will be bullish for gold and a stronger dollar bearish for gold.

Traders should expect Trump to talk about the positives in the economy. This may trigger a strong recovery in the dollar, at least over the short-run. This would be bearish for gold.

The Fed will issue its monetary policy statement on January 31. The central bank is not expected to raise interest rates. Traders will be looking for the Fed’s assessment of the economy, inflation and its outlook for future rate hikes.

Finally, investors will also get the opportunity to react to the latest data on employment in Friday’s U.S. Non-Farm Payrolls report. The headline number is expected to show the economy added 184K jobs in January, up from 148K in December. Average Hourly Earnings are expected to increase 0.3% and the Unemployment Rate is expected to remain at 4.1%.

– FX Empire-

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Gold Prices Hug on to Support.

Gold Prices Hug on to Support.

Gold prices are under pressure due to multiple reasons as lack of demand, growth of bitcoin market and strength of dollar weigh on the prices.

The gold prices continued to trade under pressure but the prices seem to be hugging on to the support region of 1248 so far and this has been the case on Friday and today as well. It remains to be seen how long it would be able to hold on to this region as we have a slew of data and major economic events for the rest of the week and each one of these is likely to have a large influence on the markets. On Friday, the gold prices came under strong pressure from the dollar as the incoming data from the US continued to be supportive of the dollar. The NFP data was released on Friday and it came in stronger than expected which helped the dollar to gain strength all across the board.

Gold Under Pressure

For sometime it did look as though the support region would be broken and that the gold prices would be looking much farther below but none of that happened as the prices managed to recover but so far, the bounce in the prices has been very weak and does not inspire too much of confidence going forward. As we had mentioned in our forecast last week, the gold market has been stunned by the huge interest in the bitcoin market which provides another opportunity for traders and investors to look for large returns. This has ensured that some funds are moved out of the gold market and with the gold prices already under pressure from lack of demand and the strength of the dollar, it has only made the situation worse for gold bulls.

-FX EMPIRE-

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Gold Price forecast for the week of October 30, 2017

Gold markets fell a bit during the week, slicing through the $1275 level. We reached down towards the $1260 level, but did find a little bit of support towards the end of the Friday session, as we were testing the bottom of the hammer from a couple of weeks previously. If we can break above the top of the weekly candle, then I think the market may try to revisit the $1300 level above. The $1250 level underneath should be supportive, and I think that the level is considered to be very supportive and essentially “fair value” from longer-term traders. Recently, we had broken out of the pink rectangle that I have on the chart, so I suspect that the buyers are probably going to be a bit more aggressive, but is not until we break above the $1310 level that I think they will start to throw a lot of money into the market.

Geopolitical concerns continue, so that of course could put a bit of a bid into the gold market, but ultimately the US dollar strengthening has been a major driver of what happens in this market, sending gold too much lower levels. I think if we break down below the $1250 level, that would be a bit of a “washout” in the overall attitude an uptrend, and I think at that point we would probably drop rather significantly, perhaps down to the $1200 level at the least. Longer-term, I believe the gold will rally, but I’m speaking in years, not necessarily weeks. Because of this, I think it is going to be very volatile, and probably easier to trade off of shorter-term charts, being able to pay attention to the various levels I have mentioned previously.

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How Does a Country’s Gold Reserve Affect its Economy?

Last month I watched one of James Bond’s movies called ‘Golden Finger’, which was produced in 1964. The story was about a villain who wanted to contaminate the US gold reserve in Fort Knox, his notion was to save gold bullions that will eventually multiply its price. As I was watching this movie, I wondered about the reason of any government to own gold, and how important is that process? What will be the consequences if the movie’s events occurred in reality?

At first glance you may think that all governments are rushing to own gold by all means; however, the fact is not exactly the same. Gold used to be the historical unique reserve asset by any government and civilians for decades due to its unique chemical specifications which made it unable to react with any element including acids, which made it a store of the value.

Nevertheless, that form was changed in the 20th century. All governments represented in their central banks or the treasury secretaries own a significant amount of reserve in the form of diversified portfolio of foreign currencies, foreign governmental bonds, and precious metals.

Most published researches and articles focus blindly on the gold amount owned by the governments regardless of how much gold represents of the total reserves. This research focus on the gold percentage compared to the total countries reserve, which will reflect the political and economical perspective of the policy makers of any country. The research classifies countries relation to gold reserves in two groups. First group is expanding gold policy countries; second, shrinkage gold policy countries.

The Gold Standard Era

Without delving too deep in history, in 1694 the Bank of England established the gold standard system to the world by replacing gold direct dealing with written banknotes to a promise of exchanging notes into gold when asked for that. This system was accepted worldwide, and stayed for more than two centuries to create an efficient economic system.

Under the gold system, the value of each currency was fixed in terms of gold, implied that the exchange rate between two currencies are fixed. The gold standard system put a lot of heavy weight on the big and smaller countries jointly. From the bigger countries side, the absolute ascending inflation for more than two centuries made the people doubt the capability of central banks in covering the banknotes into gold; as a result, speculators started selling off currencies to exchange it by gold. Such speculative actions depleted the central banks gold including BOE in the forefront. On the other side, smaller countries were enforced to raise their interest rates when rates were raised abroad; otherwise, it will find itself exposed to severe losses. Mass selloff of the local currency triggered the obligation of gold reserves or trade the local currency to other foreign currencies with higher interest rates.

During WWI the gold standard system was suspended by all countries, yet, the US remained on gold standard during the war. The war burdens left its shadows on countries, which were loaded by the war debts and hyperinflation. However, the most effected was the banking sector as many banks faced insolvency. By the end of WWI central banks made extensive efforts to reconstitute the gold standard system. Notwithstanding of printing large amounts of money bills during the war without its covering gold reserve, countries could reestablish the gold standard system. Despite these facts, the post WWI period lacked monetary stability, and countries including the UK itself seemed to give up the adoption of this system.

With the lack of political and ideological support of the gold standard system, central banks started to reevaluate its policies, especially after the world great depression era in the 30s. A significant amendments was made on the system by president Roosevelt.

Top Countries with Expanding Gold Reserve System

  • Untied states of America

As the markets crashed in 1929, UK left the gold standard system after the frequent attacks made by the speculators effected the pound price to float and to determined by the market forces. Countries started to disbelieve in the gold standard system, and one after another gave up the system.

By the collapse of the pound against the gold, speculators started to focus on US Federal gold reserve, which refused to give up the gold standard system. The US took new actions to recover the world crisis. One of the actions was to raise interest rates that was below 20% in order to break down speculations against the dollar. As the government pressured the Fed, the Federal Open Markets operations Committee (FOMC) was established to increase supply by decreasing interest rates on governmental and corporate bonds. Eventually the Fed and the government realized that they were not on the right track and they have had to change something. They realized that the gold was the pivot point of the fiscal policy and nothing can be changed without system revision.

By the beginning of President Roosevelt period, reconsideration of the gold standard system was a priority. It didn’t take too long to recognize that lifting the gold standard up was a key element to recover the great depression. Straightaway, Roosevelt took a decision to let the dollar price float against gold by resetting its value at significant low level.

WWII  burdens were insufferable, by that time every country took the decision to give up the gold standard system as it became very exhausting. In 1944, before the end of the war, the big governments signed the Breton Woods agreement, which stated currencies prices to be fixed to the US dollar instead of gold.

Nevertheless, the US Dollar should be converted in gold whenever there was a demand and gold to be priced at $38 per ounce. The final destination for gold role in the fiscal policy came in 1971 when President Richard Nixon decided to terminate the gold standard system and to replace it by the petrodollar system. Starting from that date, interest rates replaced gold and became the pivotal point of fiscal policy.

By that time, gold was out of the Federal Reserve fiscal policy; although the importance as a reserve asset did not diminish for the Treasury secretary. According to the world gold council, USA lead the countries gold reserves list. It stated that the USA holds 8133.5 (USD12 000 000 000) which consists 74% of the total reserves held by the treasury. The treasury is responsible to reserve the gold in deep storage since January 31 1934 in three places: Denver, CO, Fort Knox, KY, and West point, NY. US is the forth gold producer with 209 tons a year.

Moreover, If we’re consider the classification of gold percentage out of total reserves as no other country is keeping that high percentage of gold reserves but Tajikistan, the US is placed as the second on that list. A question should arise here, what does that means? a) USA, as the producer of the most dominating currency doesn’t need a large amount of foreign currencies. b) Gold has an inverse movement with the dollar, meaning that as the demand for gold rises by the treasury, gold price will go up and US Dollar will devalue. In other words, weakest dollar can boost economy, and higher reserved gold value.

  • European Countries Using the Euro

Similarly to the US policy, the Euro considered to be one of the world economy columns. Despite the fact that ECB holds 26% of its gold reserves by 504 Tons, every country in the EU represents its treasury by holding a separate amount of gold reserves. The form of ‘sell Euros buy gold’ as a reserve is a common policy within Eurozone countries. Germany comes second on the list by holding 3377 tons representing 68.8%, followed by Italy with 2451 tons representing 67.8% of the reserves. However, Cyprus holds only 33tons, represents 64.1% of its reserves. France 2435T 63.8%, Netherlands 612T 63.9%, Portugal 382T 59.1% and Austria 280T 45%.

The European countries maintain structured formula to hold high gold reserves of their total reserves(commodities, currencies, etc.). As the Gold standard system rules global economy, a country must sustain gold reserves in order to control its currency and economy.

  • Venezuela Learnt the Lesson

Venezuela, one of the top oil producer, was determined to hold anti-west policy, adopted the anti-dollar system by putting 64.8% of its reserves in gold instead of foreign currencies which represents only 187.5 Tons, the lowest in three decades.

That wasn’t the plan of Venezuela; in December 2009, Venezuela’s central bank released the “gold reorganizing”. They had a 10 year plan to increase gold reserves  – they didn’t declare the amount they plan to increase due to the financial crisis and the decreasing confidence in USD, and they called this year “the year of gold”. Actually the plan worked for while, where the reserved amount rose from 355T to 365T by 2011; Nevertheless, it didn’t work for a long time. The country faced a severe crisis in 2016 caused a sell-off of two thirds of its gold reserves in a lower price than 2010.

As a result, the increased amount bought after the 2009 “Reorganization” was sold by loss, and Venezuela is classified as shrinking economy. Important lesson we should learn from the Venezuela model as we go through this research.

-Source: FXEMPIRE-

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Gold Price Prediction for July 3, 2017

Gold prices edged lower on Friday following a softer than expected EMU HICP inflation report, which took some of the luster out of the yellow metal. Prices are and are poised to test support near an upward sloping trend line that comes in near 1,233. Resistance on the yellow metal is seen near the 10-day moving average at 1,247. Momentum is neutral as the MACD (moving average convergence divergence) index prints near the zero-index level with a flat trajectory which points to consolidation.

Eurozone HICP Inflation Dipped in June
Eurozone June HICP inflation fell back to 1.3% year over year from 1.4% year over year in the previous month. The number was slightly above expectations of a 1.2% increase. Core inflation rose to 1.1% year over year from 0.9% year over year. The fact remains that the ECB is heading for QE tapering from early next year, even if Draghi remains reluctant to commit to reduced purchase volumes just yet.

-Source: FXEMPIRE

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