Price of Gold Fundamental Daily Forecast – Clearly in Dollar-Driven Market

Gold futures are trading lower early Thursday after a strong surge the previous session. Wednesday’s rally was fueled by a steep drop in the U.S. Dollar. The catalyst behind the weakness in the greenback was the release of the dovish U.S. Federal Reserve minutes from its December meeting. Position-squaring ahead of today’s speeches by FOMC members and Fed Chair Jerome Powell are fueling today’s early weakness.

At 0947 GMT, February Comex gold futures are trading $1293.30, up $1.40 or +0.10%.

Gold was headed lower on Wednesday on increased demand for higher-yielding assets generated by the hope of a positive outcome from the trade talks between the United States and China. However, a late plunge by the U.S. Dollar encouraged shorts to aggressively over their gold positions, trigger a massive late session short-covering rally.

The reaction by the U.S. Dollar and in the gold market confirms the dovish tone of the minutes. Although the minutes reiterated last week’s dovish comments from Federal Reserve Chairman Jerome Powell, trader response suggests that the minutes may be stronger confirmation that the Fed may take a pause in rate hikes in 2019.

Federal Reserve Policy “Less Clear”

In their minutes, Fed policymakers conceded that the central bank’s policy path is “less clear” after hiking rates for a fourth and final time in 2018. Some members were hesitant about the December rate hike because of muted inflationary pressures.

The Federal Reserve’s latest meeting minutes also showed central bank members believe that a “limited amount” of interest rate hikes will be needed in the future.

Forecast

As of Wednesday’s close, gold futures were trading 0.45% higher and the U.S. Dollar Index about 1.01% lower for the week. This indicates the weaker U.S. Dollar is continuing to exert the biggest influence on the safe-haven precious metal.

With the talks between the US and China concluded and investors getting more clarification from the Fed, the direction of gold prices is likely to continue to be determined by the movement in the U.S. Dollar.

On tap later today is the U.S. Weekly Unemployment Claims report and a slew of Fed speakers including Powell. The jobless claims report is expected to show 226K workers filed for unemployment last week, down from 231K.

Later in the day, traders will get a chance to respond to comments from FOMC Members Bullard, Evans and Clarida. Traders will be looking for dissenters from Fed policy, or somebody that feels the central bank should continue on its tightening path. Fed Chair Powell speaks at 1745 GMT.

I don’t expect Powell to become “more dovish” than he already is so if there is a shakeup in the market today, it will be because he says something unexpectedly hawkish.