Gold Fundamental Forecast – January 19, 2017

Gold futures edged lower on Wednesday as investors reacted to a solid report on U.S. consumer inflation and hawkish comments from Federal Reserve Chair Janet Yellen late in the session.

February Comex Gold finished the session at $1203.70, down $9.20 or -0.76%.

Profit-taking after a surge on Tuesday began early Wednesday as investors responded to a monthly report on consumer inflation. It showed the CPI rose 0.3%, in line with expectations. Annualized, consumer inflation was 2.1%. This put it above the Fed’s 2.0% mandate and marked the first time it was higher than this level since the summer of 2014.

The selling pressure increased late in the session after Federal Reserve Chair Janet Yellen hinted at the possibility of several rate hikes in 2017.

Yellen said that rates were likely to rise “a few times a year” for the next couple of years.

“As of last month, I and most of my colleagues – the other members of the Fed board in Washington and the presidents of the 12 regional Federal Reserve banks – were expecting to increase our federal funds rate target a few times a year until, by the end of 2019, it is close to our estimate of its longer-run neutral rate of 3 per cent,” she said in a speech.

Forecast

Prices could remain in a tight range today on limited volume as investors adjust their positions ahead of Trump’s inauguration on Friday. Despite the setback, the uptrend remains strong

In the U.S. on Thursday, investors will get the opportunity to react to the latest data on Building Permits, Philadelphia Manufacturing, Weekly Unemployment Claims and Housing Starts.

These reports shouldn’t sway investors too much with investor focus primarily on Yellen’s hawkish comments on Wednesday and Trump’s inauguration on Friday. Gold is expected to be underpinned over the near-term by worries over Brexit and uncertainty surrounding Trump’s ability to run a government.