Price of Gold Fundamental Daily Forecast – Bouncing Back After Overreaction to Powell Remarks

Gold futures are edging higher early Wednesday, holding close to its lowest level since November 4, on mixed reactions to remarks from Federal Reserve Chairman Jerome Powell on Tuesday and uncertainty over the impact of the Omicron coronavirus variant on the global economy. Traders are also reacting to a lower dollar and potentially lower U.S. Treasury yields.

At 13:07 GMT, February Comex gold is trading $1787.50, up $11.00 or +0.62%.

Prices whipsawed on Tuesday before settling lower as worries about the efficacy of vaccines against the Omicron drove prices higher early in the session, while the initial reaction to comments from Powell weighed on prices.

On Wednesday, gold traders will be eyeing Treasury yields and the U.S. Dollar, both of which posted the same two-sided trading pattern as the gold market the previous session.

Focus Squarely on Fed

Although Omicron is grabbing the headlines, there is nothing gold traders can do about it until there is more information about the effectiveness of the current vaccines. Once that is determined then economists can make the necessary adjustments to their forecasts. Until then, traders will be watching the economic data and reacting to Federal Reserve commentary ahead of the next policy meeting on December 14-15.

On Tuesday, Powell triggered a break in gold prices when he mentioned the Fed would discuss tapering at the meeting. The sell-off in the gold market was a little excessive since this topic was already discussed by Fed Vice Chair Richard Clarida weeks ago.

A faster tapering will be bearish for gold if the economy is working on all cylinders. However, if the Omicron is expected to hurt the U.S. economy then a faster tapering may actually slow the economy too much which would be bullish for gold.

In other words, a faster tapering while the economy is getting stronger is bad for gold, a speedier tapering when the economy is still battling a deadly virus may actually be good for gold prices.

Daily Forecast

Today’s ADP Non-Farm Employment Change came in at 534K, slightly better than the 525K consensus estimate. That tells us the labor market is still improving. That also supports the case for a faster tapering.

However, like I said earlier in the week, the jobs data and the PMI data later today is essentially stale data from surveys taken before the emergence of Omicron.

I see a volatile, rangebound trade until gold traders get some clarity on the impact of the new coronavirus variant.