Gold Price Fundamental Daily Forecast – Traders Cautious Ahead of CPI Report

Gold futures are inching lower shortly before the release of the U.S. consumer price inflation report at 13:30 GMT. The price action suggests the major players are sitting on the sidelines ahead of the data that may provide some clues as to whether the Federal Reserve slows down its aggressive rate hikes, or if it continues on that path for an extended period of time.

At 13:00 GMT, December Comex gold is trading $1712.60, down $1.10 or -0.06%. On Wednesday, the SPDR Gold Shares ETF (GLD) settled at $158.68, down $0.77 or -0.48%.

Mixed Signals from Treasury Yields, U.S. Dollar

Gold traders are likely staying out of the market in front of the CPI report because of the mixed signals from the Treasury market and the U.S. Dollar.

Treasury yields are moving lower, which is typically a supportive signal for gold prices. However, the U.S. Dollar is edging higher, which usually puts a cap on gold prices.

Traders are hoping the divergence clears up following the release of the CPI report.

What to Expect from Today’s Consumer Inflation Report

Headline inflation is expected to come in at 0.6% for the month, generating a 7.9% annual reading. Core inflation is estimated to have risen by 0.5% in October, giving us a year-over-year reading of 6.5%.

Daily Forecast

For at least a week, gold traders seemed to be betting on lower-than-expected inflation, given the huge rally. This was backed by the CME’s FedWatch tool that was showing traders were about 56% certain the Fed would only raise rates by 50 basis points at its December meeting.

But the lack of follow-through to the upside and the recovering in the U.S. Dollar suggests the tone may be changing. Given that five out of the last six reports have produced upside surprises, it’s hard to go against the trend.

If the inflation numbers come in hotter than expected then look for gold prices to fall sharply lower with traders placing bets the Fed will have to raise rates either higher, or higher for an extended period of time.

This notion was supported by a Fed member on Wednesday. Minneapolis Fed President Neel Kashkari said it’s “entirely premature” to discuss any pivot away from the Fed’s current policy tightening, even as he appeared to endorse the possibility of adjusting the size of future rate hikes.