Price of Gold Fundamental Daily Forecast – Underpinned by Protectionism Fears

Gold futures settled higher on Tuesday after mounting a strong comeback, following a weaker trade earlier in the session. Gold turned positive as the dollar lost ground following the release of tepid U.S. consumer inflation data, and on the news that U.S. President Donald Trump had replaced Secretary of State Rex Tillerson.

April Comex Gold futures settled at $1327.10, up $6.30 or +0.48%.

U.S. Dollar fell against a basket of major currencies on Tuesday mostly in reaction to U.S. consumer inflation data which came out in line with expectations.  The news strongly suggests the U.S. Federal Reserve will remain on track to raise interest rates at a gradual pace, or as many as three times this year. With a stronger-than-expected CPI number, traders could have built a case for up to four rate hikes later this year.

The Labor Department said on Tuesday the U.S. consumer price index rose 0.2 percent last month after jumping 0.5 percent in January. Excluding the volatile food and energy components, the CPI gained 0.2 percent after accelerating 0.3 percent in January.

The dollar also lost ground after U.S. President Donald Trump fired Secretary of State Rex Tillerson and replaced him with Central Intelligence Agency Director Mike Pompeo, marking the biggest shakeup of the administration’s Cabinet.

After the CPI data was released, Fed funds futures showed a lower chance of a fourth rate hike this year. Going into next week’s U.S. Federal Reserve meeting, the Fed funds futures indicator shows an 86-percent chance of a rate hike.

Forecast

Gold is trading steady early Wednesday in reaction to a weaker U.S. Dollar following the surprise firing of U.S. Secretary of State Rex Tillerson and the release of a benign U.S. consumer inflation report.

At 0655 GMT, April Comex Gold is trading $1326.30, down $0.80 or -0.06%.

The surprise dismissal of Tillerson has brought up the topic of protectionism again and this may be underpinning the gold market. Additionally, there are reports that President Trump is planning to implement hefty tariffs on Chinese imports. Trump may be seeking to impose tariffs of up to $60 billion of Chinese imports and will target the technology and telecommunications sectors, two people who had discussed the issue with the Trump administration said on Tuesday.

The tariffs on China are widely opposed by a vast majority of economists as they are expected to do more harm than good. This is pressuring the dollar and supporting gold. This is probably what will be driving the price action the rest of the week.

Later today, investors will also get the opportunity to react to a number of U.S. economic reports on Retail Sales, Producer Inflation and Business Inventories. A drop in retail sales and producer inflation will be bullish for gold because they will add further to the notion of gradual rate hikes by the Fed this year.