Price of Gold Fundamental Daily Forecast – Trader Focus on Yellen, PPI and Friday’s Consumer Inflation Report

Gold prices spiked to $1225.20 early Wednesday before settling slightly above its mid-point for the session. The market was supported initially by the continuing saga in Washington over the Trump campaign’s possible involvement with Russia to influence the U.S. election. Later in the session, prices were boosted by dovish comments about inflation and interest rates by Fed Chair Janet Yellen.

August Comex Gold settled at $1219.10, up $4.40 or +0.36%.

On Wednesday, U.S. Federal Reserve Chair Janet Yellen testified before the Senate Banking Committee on inflation, the Fed balance sheet and interest rates.

While most Fed officials believe the current muted inflation figures are probably transitory, Yellen sparked a few concerns when she expressed concerns about inflation and hinted that perhaps it may not be transitory factors pressuring inflation. Her comments helped drive U.S. Treasury yields lower, making the U.S. Dollar a less-desirable investment, but boosting demand for dollar-denominated gold.

“Temporary factors appear to be a work. It’s premature to reach the judgment that we’re not on the path to 2 percent inflation over the next couple of years. As we indicate in our statement, it’s something we’re watching very closely, considering risks around the inflation outlook,” Yellen said, during a question-and-answer session.

Yellen also added that monetary policy is not on a preset course. “We’re watching this very closely and stand ready to adjust our policy if it appears the inflation undershoot appears consistent.”

Forecast

Gold prices are being supported early Thursday as investors prepare for a second day of testimony from Yellen. The market is being primarily supported by Yellen’s remark that the central bank would only gradually tighten monetary policy, curbing speculation that interest rates would rise more than once this year.

Yesterday, Yellen said the U.S. economy is healthy enough for the Fed to raise rates and begin winding down its massive bond portfolio, however, she did acknowledge that persistently low inflation may leave the central bank with very little leeway when it comes to raising rates.

Even with a second day of testimony where Yellen may be asked to further explain a few of her comments from Wednesday, traders are already looking ahead to Thursday’s U.S. producer inflation report and Friday’s consumer inflation report. The results of the CPI report on Friday are likely to cause a strong reaction in gold.

Thursday’s PPI report is expected to come in flat. A higher number will be bearish for gold. A lower number will be bullish. Friday’s CPI report is expected to show a 0.2% increase. This is slightly below the previous 0.3%. Gold should break if the CPI exceeds expectations. A lower number will be bullish for gold.