Price of Gold Fundamental Daily Forecast – Bullish Investors Hoping for CPI Data That’s Not ‘Too Hot’

Gold futures are trading slightly lower on Wednesday as Treasury yields nudged higher and the U.S. Dollar firmed. The price action suggests investors are trimming positions ahead of a key U.S. consumer inflation report that could influence the Federal Reserve’s next policy move.

Bullish investors are hoping for a steadily higher consumer inflation reading because one that’s “too hot” could kill the rally.

At 12:15 GMT, December Comex gold is trading $1827.30, down $3.50 or -0.19%.

On Tuesday gold futures climbed to their highest level since early September in reaction to a softer dollar and another dip in yields. U.S. Treasury yields fell after producer price inflation data came in as expected.

Wholesale prices rose 8.6% from a year ago in October, their highest annual pace in records going back 10 years, the Labor Department said Tuesday.

October’s producer price index, which is one measure of inflation that measures what companies get for the goods they produce, rose 0.6% from September, in line with Dow Jones estimates and an indicator that inflation pressures are continuing to pressure the U.S. economy.

Fed officials on Tuesday said it was not clear that high inflation will become more entrenched than expected.

San Francisco Fed President Mary Daly said it would be mid-2022 before there is more clarity on the employment and inflation outlook. Minneapolis Fed President Neel Kashkari said he believes the forces keeping people out of the labor market and pushing up prices will be temporary.

Earlier in the week, Federal Reserve Vice Chairman Richard Clarida conceded that inflation is running well above a level the central bank considers desirable, and if that continues it would signal a policy error.

Though Clarida still subscribes to the broader description of current price pressures as “transitory,” he said they are more intense than expected and will be higher this year than the Fed’s most recent forecast.

Daily Forecast

Last month’s consumer price index, which is more closely monitored by investors as a more direct measure of inflation, will be released at 13:30 GMT on Wednesday. CPI is expected to show a 0.6% jump compared to the prior month.

Inflation readings, along with the recovery in the labor market, are being watched by the Federal Reserve as it starts to pare back emergency economic stimulus measures. The central bank announced last week that it would start this process by reducing its bond-buying program by the end of November.

Raising interest rates would be the next step in the Fed’s normalization of monetary policy.

Although the Fed is still a long ways away from considering raising interest rates, a much stronger than expected CPI report could actually pressure gold prices since it would raise fears the Fed would have to increase interest rates sooner than expected. However, the uptrend would remain strong as long as $1795.00 held as support.

A weaker number or data that matches expectations could trigger a breakout over $1839.00 with $1919.00 – $1922.00 the next major upside target.