Price of Gold Fundamental Daily Forecast – Choppy Trade as Investors Position Themselves Ahead of Fed Comments

Gold futures are edging lower on Monday in a choppy trade shortly after the regular session opening. The market started out firm as the U.S. Dollar weakened, but erased those earlier gains when Treasury yields rebounded. This kind of two-sided trading could be the theme the next two sessions ahead of the Federal Reserve monetary policy announcements on Wednesday.

At 14:20 GMT, December Comex gold is trading $1803.80, down $2.10 or -0.12%.

Gold also drew support from risk off sentiment as equity markets fell shortly after the cash market opening in stocks. In this case, investors were using gold as a hedge against a further decline in the equity market. Traders liquidated their hedge positions when the U.S. stock market rebounded enough to challenge their highs for the session, leading gold to test its low of the day.

Treasury Yields Bounce Back after Starting the Week Lower

U.S. Treasury yields are mounting a comeback after ebbing lower earlier in the session, with investor squarely focused on the Federal Reserve two-day monetary policy meeting this week. The early price action suggests investor indecision.

The yield on the benchmark 10-year Treasury note fell 2 basis points to 1.265% and the yield on the 30-year Treasury bond dipped 2 basis points to 1.806%, before trading nearly unchanged for the session.

US Dollar Chops Around as Investors Await More Clarity on Monetary Policy from Fed

The Federal Open Market Committee’s two-day meeting is due to begin on Tuesday, with a policy statement issued on Wednesday afternoon.

Last week, the European Central Bank pledged to keep interest rates at record lows for some time and warned that the rapidly spreading Delta variant poses a risk to the Euro Zone’s recovery.

On June 16, the Fed brought forward its projections for the first post-pandemic interest rate hikes into 2023 and opened the debate on when and how it may be appropriate to start tapering the U.S. central bank’s massive bond-buying program.

Additionally, citing an improved health situation and the role of vaccinations in limiting the spread of coronavirus, the Fed’s latest policy statement also dropped a long-standing reference to the pandemic being a drag on economic growth. Given the current conditions, it will be interesting to see if the Fed reiterates its previous concerns.

Daily Forecast

While no Federal Reserve policy changes are expected in July’s meeting, we could hear more about the tapering discussions that started in June, ING Analysts wrote. The volume surrounding this issue is likely to be turned up at the August Jackson Hole conference with the risks remaining skewed towards earlier policy normalization that that the Fed is currently signaling.

CONTRARIAN ALERT:  Holdings in New York’s SPDR Gold Trust, the largest gold-backed exchange-traded fund (ETF), were at their lowest in more than two months last Thursday. Have the last of the weaker bullish traders thrown in the towel? Will new buyers show up? We’re going to start monitoring this ETF closely to see if there are any signs of accumulation.