Gold Price Fundamental Daily Forecast – Gains Likely to be Capped with No Fed Pivot in Sight

Gold futures are trading nearly flat on Friday after posting a volatile outside move before closing higher the previous session.

The market initially spiked into a two-week low on Thursday following a hotter-than-expected U.S. inflation report, but mounted a powerful turnaround throughout the session as some investors thought the market’s initial response to the data was excessive.

At 06:40 GMT, December Comex gold futures are trading $1677.20, up $0.20 or +0.01%. On Thursday, the SPDR Gold Shares ETF (GLD) settled at $154.93, down $1.06 or -0.68%.

With the CPI report out of the way, the focus now shifts back to Treasury yields and the U.S. Dollar.

Hot US Sept CPI Cements Hawkish Case in Fed Inflation Battle

U.S. consumer prices increased more than expected in September and underlying inflation pressures continued to build up, reinforcing expectations that the Federal Reserve will deliver a fourth 75-basis points interest rate hike next month, Reuters reported.

The Consumer Price Index (CPI) rose 0.4% last month after gaining 0.1% in August, the Labor Department said on Thursday. Economists polled by Reuters had forecast the CPI climbing 0.2%.

In the 12 months through September, the CPI increased 8.2% after rising 8.3% in August. The annual CPI peaked at 9.1% in June, which was the biggest advance since November 1981.

10-Year Treasury Yield Briefly Jumps Back Above 4%

Gold felt further pressure as Treasury yields rose on Thursday as investors reacted to a hotter than expected rise in consumer prices. The 10-year yield surged as high as 4.08% in the aftermath of the inflation report. However, by the mid-session, yields were off their highs, helping gold prices to recover.

Dollar Takes Breather Following Volatile Session

A major reversal down in the U.S. Dollar on Thursday also helped bolster gold prices into the close the previous session, but a flat trade early Friday is helping to put sellers in check.

The dollar index is little changed after falling 0.5% the previous session as investors digested data that showed U.S. consumer prices increased more than expected in September.

The weakness in the dollar was not only partly fueled by profit-taking, but also major reversals to the upside by U.S. stocks, the Euro and the British Pound. Furthermore, dollar traders are also on “Intervention Watch” with Japanese policymakers threatening to take “appropriate action” against excessive currency volatility.

Short-Term Outlook

The short-covering driven closing price reversal bottom on Thursday was just price action and should in no way be construed as the first sign of an impending change in trend. We base this assessment on the CPI report and the subsequent increases in the chances of a 75-basis point and 100-basis point rate hike at the Fed’s November 1-2 meeting.

The inflation data is confirming that the overall strength in prices is staying higher across a broad sector of the economy, which is a disappointment and suggests the Fed will have a greenlight to continue to raise interest rates aggressively. And the gold market doesn’t like that.

We see no pivot by the Fed before the end of the year and we expect the Fed to raise rates 75-basis points in November and December. That doesn’t bode well for higher gold prices over the next 2-1/2 months.