Price of Gold Fundamental Daily Forecast – Bullish Bets Placed on Dovish Fed Policy Announcements

Gold futures are trading higher on Monday, but retreating from their high. A weaker U.S. Dollar fueled an early follow-through rally, but a rebound in the greenback against a basket of currencies is encouraging long investors to book profits after Friday surge drove the market to a seven-month high.

At 0818 GMT, April Comex gold is trading $1306.30, up $2.10 or +0.15%.

This is a busy week with the start of high-level U.S.-China trade talks on January 30-31 and the U.S. Non-Farm Payrolls report on Friday, however, the main focus for investors at the start of the week will be U.S. Federal Reserve policy.

On January 29, the Fed is set to start a two-day policy meeting. Traders widely expect the Federal Open Market Committee to leave their benchmark interest rate unchanged. However, the market moving events will be comments from Federal Reserve Chairman Jerome Powell and whether the central bank discussed ending its program to reduce its balance sheet.

Powell is not expected to reveal anything new since he and other policymakers have already acknowledged the growing risks to the U.S. economy, fueled by weakening global economic momentum.

Of particular interest to gold traders will be comments on the Fed’s balance sheet. According to a report by The Wall Street Journal on Friday, Federal Reserve officials are nearing a decision on when to end the reduction of its balance sheet reduction program. This news, combined with the Fed passing on a rate hike at this month’s meeting, will telegraph to investors the degree of dovishness from the Fed.

The topic of ending the balance sheet reduction program is expected to come up at this week’s meeting because the Fed has been weighing the idea during its last several meetings. In December, Fed policymakers even noted that the central bank’s benchmark funds rate could become volatile as the operations proceeds.

“A lot of the heavy lifting has been done,” Kansas City Fed President Esther George told The Wall Street Journal in a January 15 interview. “We’re waiting for the committee to be satisfied that they have reached sufficient understanding of what all the moving pieces are.”

In other bullish news for gold, last week the Bank of Japan left its benchmark interest rate at ultra-low levels, while lowering its inflation forecast. It also cited concerns about an economic slowdown due to the on-going trade dispute between the United States and China.

European Central Bank President Mario Draghi also sent out a bullish signal for gold when he warned about the slowing Euro Zone economy. Furthermore, investors moved the next likely date for an ECB rate hike to December or later.

Forecast

The direction of April Comex gold will continue to be dictated by the movement in the U.S. Dollar. The potentially bearish Fed news combined with long safe-haven liquidation due to the end of the government shutdown should keep a lid on the U.S. Dollar. This is likely to continue to make gold an attractive dollar-denominated investment.