Gold Price Fundamental Daily Forecast – Sellers Bracing for Aggressive Central Bank Rate Hikes

Gold futures are edging lower on Monday as Treasury yields rose slightly and the U.S. Dollar resumed its uptrend. The lack of follow-through to the upside following Friday’s reversal rally suggests investors are already bracing for a number of aggressive rate hikes by central banks this week, including the Swiss National Bank (SNB), the U.S. Federal Reserve and the Bank of England.

At 07:00 GMT, December Comex gold is trading $1674.40, down $9.10 or -0.54%. On Friday, the SPDR Gold Shares ETF (GLD) settled at $155.85, up $0.87 or +0.56%.

Traders are expecting a low volume session due to the absence of any major economic reports. Furthermore, many of the major players are expected to move to the sidelines ahead of the central bank announcements this week. Additionally, the world’s biggest trading center for physical gold in London, will be closed for Queen Elizabeth’s funeral.

Factors Driving the Gold Trade

Although textbook traders keep insisting that gold is a safe-haven commodity, its inability to react to soaring inflation, economic growth and rising geopolitical risks, suggests otherwise. During these uncertain times, traders have been moving into the U.S. Dollar for protection.

Rapidly rising interest rates have also been a problem for gold because high interest rates increase the opportunity cost of holding non-yielding bullion. Basically, why invest in non-yielding gold when you can earn interest holding government debt or putting it in a bank?

What to Expect from the Major Central Bank’s This Week

The U.S. Federal Reserve’s Federal Open Market Committee (FOMC) is expected to begin its two-day meeting on interest rates on September 20 and announce its decision the following day. Market participants are fully pricing in a 75-basis point rate hike by the U.S. central bank.

The Swiss National Bank (SNB) will join the 75 basis point rate hike club on Thursday to choke off nearly three-decade-high inflation, according to economists polled by Reuters, who also said price rises were yet to peak despite a strong currency.

Last week, SNB Chairman Thomas Jordan shared similar concerns and stated the inflation outlook was more uncertain than normal, suggesting more aggressive rate hikes were needed.

Also on Thursday, the Bank of England (BoE) is expected to raise its benchmark interest rate by 50 basis points. Earlier in the month, traders were pricing in a more than 80% chance that it would raise rates by 75 basis points.

Short-Term Outlook

We could see a choppy, two-sided trade ahead of the Fed’s rate hike on Thursday due to lingering uncertainty surrounding the size of the central bank’s next rate hike.

Although the CME’s FedWatch Tool shows traders expect a 75-basis-point rate hike, the Fed could always go big with a full-percentage point rate hike. This hawkish move would crush gold prices and probably send the December futures contract to $1600.

Rates are rising too much, too fast so gold is likely to remain in a “sell the rally” mode. So even if there is a short-covering rally after the Fed decision, it’s likely to be met by resistance.