Gold futures closed lower last week but inside the previous week’s range, indicating investor indecision and impending volatility. The catalysts behind the selling pressure were higher U.S. Treasury yields and a stronger U.S. Dollar. Appetite for risk was mixed so we consider it a non-factor in last week’s price action.
December Comex Gold futures settled at $1232.70, down $7.70 or -0.62%.
Although it finished lower last week, gold did have a couple moments of brightness. However, they were essentially fueled by a weaker dollar rather than increased demand for the precious metal.
These were the factors that generated the price action in the U.S. Dollar and consequently in gold prices: Domestic economic data, a potential shift in Bank of Japan Policy and the possible settling of the trade dispute with the European Union.
The major reports that moved the dollar and gold included Durable Goods and Advance GDP. New orders for key U.S.-made capital goods increased more than expected in June and shipments surged, pointing to solid growth in business spending on equipment in the second quarter. Second-quarter GDP was the best in nearly 4 years, at 4.1 percent. The dollar weakened on Friday after the release of the GDP data as investors expressed doubt the growth would continue the rest of the year. This helped underpin gold.
Gold rallied when the dollar lost ground against the Japanese Yen early in the week on reports that the Bank of Japan was preparing to make changes to monetary policy. However, the Dollar/Yen was able to stabilize and consolidate the rest of the week as investors began to doubt that the BoJ will change its stimulus program when it meets next week. Essentially, gold showed a mixed reaction to this news while posting a two-sided reaction.
Gold was also pressured late in the week when the dollar picked up some strength, mostly in response to a weaker Euro and a trade agreement between the United States and the European Union.
The number of U.S. economic reports this week suggests impending volatility for gold traders. This is because all of them should have an effect on the U.S. Dollar and Fed activity.
On Tuesday, investors will get the opportunity to react to the Conference Board’s Consumer Confidence report. It is expected to come in slightly higher at 126.5 versus 124.4. Last month’s report came in below expectations, but traders showed no reaction to the news because the index remains at historical levels.
The dollar could weaken and gold could strengthen if the report comes in lower than expected. One reason for a lower number will be consumer concerns over the impact of tariffs on the economy.
On Wednesday, investors will get the first look at U.S. employment data with the release of the ADP Non-Farm Employment Change report. It is expected to show the private sector added 186K jobs in July. ISM Manufacturing PMI is expected to come in at 59.4, slightly below the previously reported 60.2.
The Fed is also scheduled to meet on Wednesday. However, this will primarily be an informational meeting. The Federal Open Market Committee Statement is expected to be unchanged from June’s statement. Also, don’t expect a change in interest rates. The FOMC could comment on inflation and the job market as well as give its opinion on Friday’s GDP report.
Finally, Friday’s U.S. Non-Farm Payrolls report is expected to show the economy added 193K jobs in June. The unemployment rate is expected to slip to 3.9% and Average Hourly Earnings are expected to increase 0.3%. Once again the focus will be on wages. Higher wage growth will keep the Fed on track to raise rates at least two more times this year. ISM Non-Manufacturing PMI is expected to come in at 58.7, down from 59.1.
Overall, steady-to-better economic data should keep a lid on gold prices.