Gold Price Fundamental Daily Forecast – Profit-Taking Weighs after Fed Official Stresses Rates Need to Go Higher

Gold futures are edging lower on Monday on profit-taking following a hawkish warning from a Federal Reserve official earlier in the day. Overbought technical conditions may have contributed to the move, following a steep rise of $92.80, or +5.24% last week.

At 07:54 GMT, December Comex gold futures are trading $1763.80, down $5.60 or -0.32%. On Friday, the SPDR Gold Shares ETF (GLD) settled at $164.54, up $1.06 or +0.65%.

The catalyst behind the rally was a cooler-than-expected U.S. consumer inflation report that increased the odds of a 50 basis point rate hike in December by the Federal Reserve, while lowering the odds of a 75 basis point rate rise.

Treasury yields fell hard on the news, driving down the investment appeal of the U.S. Dollar, while increasing demand for dollar-denominated bullion.

Fed Members Warn of More Rate Hikes to Follow

In an effort to prevent a speculative nightmare in the financial markets, several Fed officials have warned that central bank policymakers are not finished raising rates and more pain is possible for the economy despite signs that inflation may have peaked earlier in the year.

The comments came as the U.S. Dollar tanked 4.34% against a basket of major currencies, the bench market S&P 500 Index soared 5.52% and gold rallied by 5.24% last week.

Fed Member Daly Remains Hawkish

San Francisco Fed President Mary Daly said on Friday she would rather err on the side of raising rates slightly too far, than not raising them high enough, and would want to keep them there long enough to bring inflation “reliably” back to 2%.

Fed Member Mester Sees Risk if the Central Bank Doesn’t Act Aggressive Enough

Federal Reserve Bank of Cleveland President Loretta Mester in a separate event on Thursday signaled that she, like Daily, also feels the main risk for the U.S. central bank it doesn’t act aggressively enough.

“Given the current level of inflation, its broad-based nature, and its persistence, I believe monetary policy will need to become more restrictive and remain restrictive for a while in order to put inflation on a sustainable downward path to 2%,” Mester said.

Fed President Harker Says Fed Should Be Data Dependent

Philadelphia Fed President Patrick Harker for his part said he believes the Fed ought to pause once rates get above 4.6%, to gauge the effects of tighter policy. “If we have to, we can always tighten further, based on the data,” he said.

Fed’s Waller Stresses Rates Need to Go Higher

Federal Reserve Governor Christopher Waller said on Sunday that the financial markets seem to have overreacted to the softer-than-expected October consumer price inflation data released last week.

“It was just one data point,” Waller said. “The market seems to have gotten way out in front over this one CPI report. Everybody should just take a deep breath, calm down. We’ve got a ways to go,” Waller said.

Short-Term Outlook

Despite last week’s strong rally, keep in mind that the first leg up from any major bottom is fueled by short-covering. Real buyers are not likely to chase prices higher when they could have bought gold nearly $100 lower a week ago.

The real buyers are likely to show up on a meaningful pullback into a value area. This zone is at $1697.00 to $1678.40.

This analysis suggests there are some risks to the downside.