Gold Fundamental Forecast – December 14, 2016

Gold futures finished lower on Tuesday, but inside Monday’s range. The price action indicates investor indecision and impending volatility. The next move by the market will be determined by the language in the Fed’s monetary policy statement on Wednesday.

February Comex Gold futures closed at $1159.00, down $6.80 or -0.58%. This was a stark contrast to Monday’s price action that formed the range for the week at $1152.50 to $1167.90.

The technical picture is starting to look bullish with a breakout to the upside a possibility. This is more likely to occur if the Fed remains dovish or if the stock market starts to weaken.

Forecast

I’m looking for extreme volatility with the release of the Fed monetary policy statement at 1900 GMT and during Fed Chair Janet Yellen’s press conference at 1930 GMT.

The Fed is widely expected to raise interest rates by 25 basis points on Wednesday. The rate hike won’t surprise anyone, but traders should be prepared for the wording of the Fed’s policy statement, Fed Chair Janet Yellen’s press conference or the Federal Open Market Committee board members’ “dot plot” projections of the funds rate.

If the Fed sides with the Treasury investors and indicates that rates should rise several times next year then gold will be pressured. If Yellen convinces her board members to remain dovish then the dollar could fall and gold could rally.

In other news, U.S. Core retail sales are expected to come in at 0.4%. Retail sales could decline from 0.8% to 0.3%.

Capacity Utilization Rate is expected to come in slightly lower at 75.1%. Industrial Production may drop 0.2%.

Don’t expect too much of a reaction to the economic data. The focus will be on the Fed today and its interest rate projections.