Gold Price Fundamental Forecast: Neutral
- G20 Leaders’ Summit underwhelmed, US yield curve inversion sparked fears in markets
- Gold prices[1] found strength amidst weakness in US Dollar[2] and government bond yields
- Next week holds numerous uncertainties for gold: Brexit draft vote, US CPI and ECB
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Last week, gold prices had a chance to close at their highest since the middle of July. The fundamental backdrop was a combination of declines in the US Dollar and local front-end government bond yields. Since gold is priced in USD[4], a weaker greenback makes the precious metal relatively more expensive. As for the latter, when bond yields decline, the non-interest bearing asset looks comparatively more appealing.
This was largely thanks to two themes that emerged. The first was a G20 Leaders’ Summit that underwhelmed US China trade war relief bets[5]. Then, markets started worrying about the economic implications of an inverted yield curve. Although fears about the latter may have been unfounded when looking at which maturity spreads saw inversion[6].
The week ahead offers a couple of notable event risks for gold starting with what could spark more market-wide pessimism. On Tuesday, the UK Parliament is readying up to vote on Prime Minister Theresa May’s Brexit deal. This past week saw Mrs. May lose a few votes[7] that eroded confidence in getting her draft passed. Should the vote be lost, the threat of more uncertainty could continue fueling risk aversion
