Price of Gold Fundamental Daily Forecast – Choppy Trade as Investors Consider Fed’s Next Move

Gold futures are trading lower shortly before the New York opening on Thursday after spiking to a 4-1/2 month high the previous session. A two day jump in the U.S. Dollar against a basket of major currencies and a surge in U.S. Treasury yields is helping to pressure the precious metal.

Despite hitting a multi-month high this week, the rally has been a little uneven as investors turned to weekly unemployment claims data amid fears that signs of an improving economy would lead the Federal Reserve to start tapering its accommodative monetary policy.

At 11:48 GMT, August Comex gold is trading $1894.80, down $9.00 or -0.47%.

Worries about rising inflation have been supportive this week, while a potential tightening of policy may have slowed the pace of the rally at times. Some of those concerns, however, eased this week as a number of Fed officials said the central bank would maintain its dovish stance, even as they acknowledged they were closer to debating reining in support.

The price action suggests bullish traders are still in control. The spikes to the upside make that apparent. However, the lack of consistent follow-through buying combined with the periodic pullbacks suggests some traders may be beginning to cash in on the rallies while they consider the possibility of the Fed at least discussing slowing down its bond purchases.

After listening all week to the dovish Fed speakers, gold traders may have received a dose of reality on Wednesday when a Federal Reserve official signaled he was ready to open talks on reducing some of the U.S. central bank’s support for the economy, even if only to clarify the Fed’s plans as the economy roars ahead and prices rise.

“I don’t want to overstate my concern,” the Fed’s vice chair for supervision, Randal Quarles, said at a Brookings Institution event. He noted he did not expect a round of 1970’s-style breakout inflation, and that he was “fully committed” to a new Fed strategy that aims to keep monetary policy running full-throttle while jobs recover, Reuters reported.

But he also laid out the case for why the “upside” risks of higher inflation may be mounting, and how the Fed may need to begin smoothing the way for a policy shift.

Daily Outlook

Traders will get the opportunity to react to several key U.S. economic data, including gross domestic product, jobless claims and consumer spending.

The Labor Department’s weekly jobless claims report is considered to be the timeliest indicator of economic health. The number of Americans filing new claims for jobless benefits likely stayed below 500,000 for a third straight week, the report due at 12:30 GMT is expected to show.

A separate report is expected to confirm that the U.S. economy accelerated at its fastest pace in nearly four decades in the first quarter.

Due to thinning trade conditions ahead of an extended U.S. holiday weekend, we could see some wild price swings today if the data come in out of line.

We could also see a muted reaction to the reports if investors shift most of their focus to Friday’s personal consumption expenditures (PCE) report as it is the Fed’s preferred inflation measure for its 2% long-term target.