Price of Gold Fundamental Daily Forecast – Did Fed Remarks Spark Start of Next Rally?

Gold prices spiked higher on Wednesday in response to a weaker U.S. Dollar and a late session sell-off in the Dow Jones Industrial Average and the S&P 500 Index. U.S. Dollar and stock market traders were responding to the minutes of the Fed meeting which said Fed officials fear valuations in the stock market are too high and a ‘sharp reversal’ could be ahead. The weakness in the stock market late in the session sent investors into safe-haven assets like gold and the Japanese Yen.

December Comex Gold settled at $1292.20, up $10.50 or +0.82%.

The minutes of the U.S. Federal Reserve meeting in November released Wednesday revealed that central bank officials were largely optimistic about the economy but also worried that financial market prices are out of balance and posing a threat to the economy.

In other news, U.S. Durable Goods declined 0.5 percent last month. That was the biggest drop since September 2016 and followed an upwardly revised 2.1 percent increase in September. Traders were looking for an increase of 0.5 percent last month after a previously reported 1.7 percent jump in September. Core Capital goods orders rose 4.4 percent on a year-on-year basis.

U.S. Weekly Unemployment Claims came in at 239,000 for the week-ended November 18 versus an estimate of 240,000.

According to a revision of the data for November from the University of Michigan’s Consumer Survey Center, U.S. consumer sentiment was revised up more than expected. The survey showed consumer sentiment inched up to 98.5 from the initial reading of 97.8. Traders were looking for a slight rise to 98.0.

Forecast

The Comex gold market is closed on Thursday due to a U.S. bank holiday.

Due to this week’s holiday trade, I don’t think we’ve seen the full reaction to the Fed minutes. Traders may have to wait for Monday for this.

With the Fed clearly warning that the stock market may be overvalued and ripe for a correction as well as a possible threat to the economy, the next move is up to equity market investors.

They can brush off the remarks and continue the stock market rally. In this case, gold is likely to remain rangebound. Gains would definitely be limited.

If investors take heed to the Fed’s remarks and it leads to a stock market correction, then gold is likely to be underpinned. Depending on the size and duration of the stock market correction, gold prices could surge over the near-term.

Wednesday’s rally was likely fueled by short-covering. However, if stock market investors believe the Fed and start to pare positions then the next rally in gold is likely to be fueled by new buying.