Gold Price Fundamental Daily Forecast – Threat of Full-Point Rate Hike Puts $1618.00 on Radar

Gold futures are trading sharply lower early Thursday, testing its weakest level since March 30, 2021. The catalysts behind the selling pressure are a stronger U.S. Dollar and expectations of big interest rate hikes from the Federal Reserve next Wednesday and perhaps early November.

At 05:01 GMT, December Comex gold is trading $1696.10, down $13.00 or -0.76%. On Wednesday, the SPDR Gold Shares ETF (GLD) settled at $157.92, down $0.62 or -0.39%.

Fed Funds Traders Leaning Toward Huge Rate Hike

Fed funds futures are pricing in a 30.0% chance that the U.S. central bank will hike rates by 100 basis points at its policy meeting on September 21. The chances of a 75 basis point rate hike are pegged at 70.0%.

After the release of the red hot August consumer inflation report earlier this week, traders are also pricing in the probability of a 75 basis point rate hike on November 2 at 55.7% and the probability of a 100 basis point rate hike at 19.3%.

Gold is highly sensitive to rising U.S. interest rates as they increase the opportunity cost of holding the non-yielding bullion while boosting the dollar.

Gold Traders Bracing for Shocking Move by Fed

Even before the release of the August consumer inflation report, Federal Reserve officials led by Chief Jerome Powell were warning of the need to remain aggressive with interest rate hikes in order to stomp stubbornly high inflation.

At Jackson Hole, Wyoming on August 26, Powell pledged that the central bank will “use our tools forcefully” to attack inflation that is still running near its highest level in more than 40 years.

Powell added that higher interest rates likely will persist “for some time.” The historical record cautions strongly against prematurely loosening policy.”

Fed Chair Powell also said, “While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,” he said in prepared remarks. “These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”

The funny thing is, the U.S. central bank leader issued his warning amid signs that inflation may have peaked. If Powell was hawkish then, imagine how he feels now after the scorching numbers from August.

Short-Term Outlook

Early Thursday, the fundamental and technical pictures are in line. Fundamentally, the market is accepting the possibility that the Fed is ready to “go big, or go home” with its next rate hike.

Technically, the daily chart shows there is plenty of room to the downside under $1694.50 with the April 1, 2020 low at $1618.00 the next major target. This is known as the “pandemic low”.