Price of Gold Fundamental Daily Forecast – Dovish or Hawkish, Powell Will Be Source of Volatility

Gold futures are trading steady-to-better on Friday as traders prepare for a speech by Federal Reserve Chairman Jerome Powell at 14:00 GMT that could reveal cues on the timing of its stimulus tapering plan.

Fed Hawks Push Early Tapering Ahead of Fed Speech

Ahead of the speech, gold traders have been facing a mixed bag of comments that have driven prices in both directions.

A week ago Dallas Federal Reserve President Robert Kaplan, among the U.S. central bank’s most forceful supporters for starting to reduce support for the economy, turned a little dovish when he said he may need to adjust that view if the Delta variant of the coronavirus slows economic growth materially.

“It’s unfolding rapidly,” Kaplan said on Fox Business Network’s “Mornings with Maria” program.

“So far, it’s not having a material effect” on consumer activity like dining out, he said, but “it is having an effect in delaying return to office, it’s affecting the ability to hire workers because of fear of infection,” and may be affecting production output, he said.

Kaplan’s comments helped generate a dovish theme in the gold market this week with the headlines saying Powell would likely give a dovish speech.

However, as the week worn on, the Fed’s tapering hawks began to circle Powell as they pushed for the start of bond tapering.

Hawks Argue Bond Purchasing Stimulus Has Become Ineffective

The U.S. Federal Reserve’s hawkish wing used Thursday to urge the central bank to begin paring bond purchases they feel have become ineffective, if not downright harmful.

Kaplan, along with Kansas City Fed President Esther George and St. Louis Federal Reserve President James Bullard, all downplayed the impact of the Delta variant in separate interviews.

Bullard, speaking on CNBC on Thursday, repeated his call for the Fed to start trimming its $120 billion in monthly bond purchases soon and end the program by early next year.

“We probably don’t need the asset purchases at this point, said Bullard.

George and Kaplan said their business contacts were telling them the economic effects remained limited.

That comment represented an upgraded outlook from the comments Kaplan made last week when he turned more cautious about the potential harm to the economy from the highly contagious variant.

“By and large what we are hearing…is they (businesses) are weathering this resurgence at least as well as previous surges, and many are telling us the impact on their business is more muted,” Kaplan told CNBC.

Meanwhile, Esther George said with strong inflation and expected continued job growth “there is an opportunity to begin to dial back on asset purchases,” with her preference being that the process start “sooner rather than later.”

Daily Forecast

Whatever Powell says in his speech at 14:00 GMT will be the source of volatility. This is because tapering is still a two-sided issue in my opinion.

Earlier in the week, Powell probably would’ve sounded dovish, but with the FDA’s approval of the Pfizer vaccine, he probably move toward less-dovish. However, we aren’t sure how he will respond to the heat from the hawkish Fed members.

I still think the Fed needs to see the August Non-Farm Payrolls and Consumer Inflation data, due to be released in early September, before making a tapering decision.

Therefore, I expect the Fed to wait until at least the September 21-22 meeting before making an announcement regarding the start of tapering.