Price of Gold Fundamental Daily Forecast – Clarida’s Hawkish Comments on Pace of Tapering Sinks Gold Prices

Gold futures are trading lower on Monday, testing its worst level since November 10, on long-liquidation tied to a stronger U.S. Dollar and firm Treasury yields. Concerns over rising COVID-19 cases in Europe are being downplayed as investors remained focused on the pace of the Fed’s tapering of stimulus as well as the timing of its first post-pandemic interest rate hike.

At 12:13 GMT, February Comex gold futures are trading $1844.00, down $10.30 or -0.56%.

Some of today’s selling pressure is being fueled by profit-taking, while some traders may be initiating new short positions on expectations the U.S. Federal Reserve would accelerate the pace of stimulus tapering to curb broadening inflationary risks. This notion is being supported by hawkish comments from Fed Vice-Chair Richard Clarida on Friday.

As Inflation Surges, Fed to Debate Faster Taper, Earlier Rate Hikes

Federal Reserve policymakers are publicly debating whether to withdraw support for the U.S. economy more quickly to deal with surging inflation, with one of the central bank’s most influential officials signaling on Friday that the idea will be on the table at the Fed’s next meeting, Reuters reported.

In late October, the Fed said the economy was strong enough to begin tapering its $120 billion in monthly asset purchases. The plan was to complete the process by mid-2022, followed by its first rate hike in July 2022.

Since the Fed released that monetary policy statement, the economic recovery has gained traction, with reports showing more than half a million jobs added in October, retail sales surging and consumer inflation notching its biggest annual increase in 31 years.

All of those factors were bullish for gold prices until Federal Reserve members started talking about an early tapering.

“I’ll be looking closely at the data that we get between now and the December meeting, and it may well be appropriate at that meeting to have a discussion about increasing the pace at which we are reducing our balance sheet,” Vice Chair Richard Clarida said at the San Francisco Fed’s 2021 Asia Economic Policy Conference, noting that he and many of his colleagues see upside risks to already high inflation. “That will be something to consider at the next meeting.

Daily Forecast

Clarida’s comments are bearish for gold because they mean that even a big jump in November jobs growth and consumer inflation won’t be enough to send prices higher now that the Fed is expected to consider a faster tapering and an earlier rate hike.

Furthermore, Fed Governor Christopher Waller even called for the Fed to double up on its tapering. Finishing the reduction of stimulus by April will open up the Fed to a second quarter rate hike, much sooner than the July date first projected.