Gold Price Fundamental Daily Forecast – Testing 31-Month Low After Powell Torches Bulls with Hawkish Tilt

Gold prices are trading sharply lower on Thursday after speculators who bought in anticipation of a dovish pivot by the Fed were encouraged to sell after Fed Chair Jerome Powell indicated the central bank would stick with raising rates to corral soaring inflation.

At 12:58 GMT, December Comex gold futures are trading $1620.60, down $29.40 or -1.78%. On Wednesday, the SPDR Gold Shares ETF settled at $152.40, down $1.06 or -0.69%.

Higher U.S. bond yields and a sharp rise in the U.S. Dollar are the primary reasons for weaker gold prices. Gold is a non-yielding investment so when interest rates rise, bullion becomes less-attract to investors looking for a return on their money.

In other words, why would you put money in gold when you can buy a guaranteed bond and get paid by the government to do that?

Additionally, rising yields are making the dollar a more attractive investment. Since gold is priced in dollars, a strong greenback makes it more expensive for foreign buyers.

Central Bank Activity Weighs

On Wednesday it was the Fed that pressured gold prices. On Thursday, additional pressure was exerted by the Bank of England.

The Fed raised its benchmark rate by 75 basis points as widely expected on Wednesday. This was telegraphed for weeks and had already been priced into gold.

Ahead of the Fed announcements, some gold speculators bought bullion on the hope that the Fed would reveal a plan to begin slowing down the size of its rate hikes in December.

However, this didn’t happen and conditions even worsened after Fed Chair Powell said there would be no softening in December and rates will go higher. So instead of reaching a terminal rate in March 2023, the market is now anticipating a May 2023 date.

This is the bearish news that surprised gold traders and encouraged today’s liquidation.

Meanwhile, the Bank of England also jumped on the supersized rate hike bandwagon on Thursday. The BOE raised interest rates by 75 basis points to 3% in its biggest hike since 1989, and it warned of a “very challenging” outlook for the economy.

Short-Term Outlook

“The Fed has hinted for slower rate hikes going forward, but terminal rate expectations have shifted higher. This would exert downward pressure on gold in the near-term,” said ANZ commodity strategist Soni Kumari.

Sentiment is clearly negative and baring a surprise short-covering rally due to short-term oversold conditions, it’s hard to build a case for higher prices until the Fed makes a commitment to slow the pace of rate hikes. However, this is not likely to happen until inflation drops to the mandated 2% level.