Price of Gold Fundamental Daily Forecast – Acting Like Rate Cut, Recession Already Priced In

Gold is trading flat to lower on Wednesday, while remaining inside Monday’s wide range for a second session. The price action is very similar to chart pattern that took place between August 13 and August 23. The fundamentals remain bullish, but the recent price action has been lousy. The market is in a position to close about $115 higher for the month, but it’s the miniscule $19 gain from high-to-high that could be indicating overbought conditions.

At 10:48 GMT, December Comex gold is trading $1552.10, up $0.30 or +0.03%.

Gold may be holding near a more than six-year high on hopes of a rate cut by the U.S. Federal Reserve and uncertainties around the Sino-U.S. trade talks, but this only indicates both events may have been fully-priced into the market. By stalling the rally after Monday’s surge, gold bulls may be asking, “what have you done for me lately?’ Perhaps they want to see trader sentiment shift toward a 50-basis point rate cut by the Fed.

Monday’s spike in prices is a little suspect too. From my perspective, it looks as if aggressive Asian or European buyers may have been caught in a bull trap. Remember that the volatility on Friday took place after the Asian and European markets were closed so they may have come in heavy when the markets opened early Monday. Now they are caught holding positions at unfavorable prices.

Daily Forecast

Gold is likely to be supported as long as the U.S.-China trade dispute continues. If tangible signs start to emerge that the two sides are making progress in their negotiations then we could see gold prices tumble.

Furthermore, financial market conditions have calmed down since Monday. This could mean that both sides are already talking behind the scenes. Gold traders have to be prepared for the real possibility that the U.S. and China may be working on declaring a “cease fire” or a “truce” when it comes to new tariffs.

In my opinion, over the short-run gold has more downside potential than upside opportunity.

Federal funds futures implied traders saw a 91% chance of a 25-basis point rate cut by the U.S. central rank next month. Gold traders have already price in this move.

Furthermore, the yield on the benchmark 2-year Treasury note, more sensitive to changes in Federal Reserve policy, fell to 1.5180% Wednesday morning, 6 basis points above the 10-year note’s rate. This move tends to indicate a future recession. However, gold prices remain under pressure.

If you asked me a month ago what would happen to gold prices if the yield curve inverted, I would have said gold prices would rally. And guess what? They did. So the recession may already be priced in too.

So it leads me to believe that the market is fairly priced at current levels and in order to rally further, traders are going to need to see signs that the Fed is willing to be more aggressive than just a 25-basis point cut in September.