Price of Gold Fundamental Daily Forecast – ADP Report Will Be Early Source of Volatility; FOMC Minutes Later

Gold futures are edging higher early Wednesday as traders continue to weigh the chances of an early interest rate hike by the Federal Reserve against rising Omicron coronavirus variant cases that could slow down the economic recovery and labor market growth. Flat Treasury yields and a slightly weaker U.S. Dollar are also helping to underpin prices.

With the labor market in focus this week, today’s ADP Non-Farm Employment Change report could have an impact on the market’s direction early in the session, while later in the day, the Federal Open Market Committee (FOMC) meeting minutes could influence the price action.

At 11:16 GMT, February Comex gold futures are trading $1819.40, up $4.80 or +0.26%. On Tuesday, the SPDR Gold Shares ETF (GLD) settled at $169.60, up $1.27 or +0.75%.

Treasury Yields Fall as Investors Await Fed Meeting Minutes

U.S. Treasury yields are down early Wednesday, helping to underpin gold prices, with minutes from the Federal Reserve’s December policy meeting due out later in the day.

The yield on the benchmark 10-year Treasury note moved 2 basis points lower to 1.6438% at 09:15 GMT. The yield on the 30-year Treasury bond dropped 3 basis points to 2.047%.

Investors will be poring over the minutes from the Fed’s December meeting, which are due to be released at 19:00 GMT on Wednesday.

Fed Minutes on Tap

After its December meeting, Fed policymakers announced it would be speeding up the reduction of its monthly bond purchases. Fed officials also indicated that they foresaw as many as three interest rates coming in 2022.

The Fed made its intentions pretty clear in its last policy statement so the minutes are not expected to offer many surprises. That being said, the markets may have already priced in many of the interest rate hikes expected over the next few years, partly because of concerns around inflation. But traders still aren’t clear on the conditions needed for the first rate hike. This may be the source of volatility.

ADP Labor Market Data Will Be Closely Watched

Payroll services firm ADP is set to release its December employment change report at 13:15 GMT. It is expected to show the private sector of the economy added 405,000 jobs last month. Jobs data is one indicator being used by the Fed to help determine its timeline on tightening monetary policy.

Short-Term Outlook

The Fed’s announcements after its December meeting were construed as bearish initially with prices falling to $1753.00. However, since then, gold has rallied $80.00. This is likely because investors aren’t sure of the timing of the first rate hike. This has been the source of volatility this week.

At the end of 2021, gold traders were expecting the first rate hike in June, but market sentiment shifted quickly on Monday with 70% of investors now looking for an April rate hike. This drove prices sharply lower.

Tuesday’s November Job Openings and Labor Turnover Survey (JOLTS), threw a wrench into those plans when it showed a record 4.53 million U.S. workers quit their jobs that month. Consequently, gold prices have rebounded since the news was released.

This puts a lot of extra weight on today’s ADP report and especially on Friday’s U.S. Non-Farm Payrolls report. They have to show the economy added enough jobs to keep the recovery on course for pre-pandemic levels or the market may dial back expectations for an April rate hike.

The bottom-line is this:  Strong jobs data will mean an early rate hike and lower gold prices. Weak labor market reports will push back rate hike expectations and provide support for higher prices. It all starts with today’s ADP report.