Price of Gold Fundamental Daily Forecast – “Dovish” Fed Fuels Strong Short-covering Rally

Gold surged on Wednesday in reaction to a steep drop in the U.S. Dollar following the Fed’s decision to raise interest rates. Although the Fed raised its benchmark interest rate as widely expected, it left its outlook on rates unchanged. This was the catalyst for the spike in gold prices.

February Comex Gold futures settled at $1248.60, up $6.90 or +0.56%.

Gold spiked higher after the Fed’s monetary policy announcements as the U.S. central bank kept its interest rate projections steady rather than revising them higher.

The Fed raised its benchmark rate by a quarter point to a range of 1.25-1.50 percent on Wednesday. The central bank projected three more rate hikes in both 2018 and 2019, unchanged from its September forecasts.

The central bank also hiked its GDP estimate from 2.1 percent in September to 2.5 percent. The Federal Open Market Committee also adjusted its inflation forecast for 2018 to 1.7 percent from 1.6 percent.

Two Fed presidents voted against the increase – Charles Evans of Chicago and Neel Kashkari of Minneapolis.

In other news, gold was supported early in the session after U.S. core consumer price data released on Wednesday showed slowing inflation, raising concerns the Fed will be less able to execute multiple rate increases next year.

The Labor Department said on Wednesday its Consumer Price Index increased 0.4 percent last month after edging up 0.1 percent in October. That raised the year-on-year increase in the CPI back to 2.2 percent from 2.0 percent in October. The increase was in line with economists’ forecasts.

Core CPI advanced 0.2 percent in October. As a result, the annual increase in the core CPI slowed to 1.7 percent in November from 1.8 percent in October.

Forecast

Oversold conditions and a “dovish” Fed were enough to drive the weak shorts out of the gold market. Additionally, it may have given many short-sellers an excuse to book profits after a prolonged sell-off in terms of price and time.

The news isn’t bullish enough to change the trend to up, but I do see the strong possibility of a short-covering rally into $1270.90 to $1278.50.

Today, investors will get the opportunity to react to a slew of economic reports. Minor reports include Business Inventories, Flash Services PMI and Flash Manufacturing PMI.

Traders will be primarily focused on Weekly Unemployment Claims, Import Prices and Retail Sales.

November Retail Sales are expected to show an increase of 0.3%, up from 0.2%. Core Retail Sales are expected to rise 0.6%, up from 0.1%.