Price of Gold Fundamental Daily Forecast – Durable Goods Report, Brainard Speech Take on Added Importance

Gold prices tumbled more than 1 percent on Tuesday in reaction to hawkishly interpreted remarks from Fed Chair Janet Yellen. Rising interest rates tend to drive up U.S. Treasury yields which in turn boost the U.S. Dollar while pressuring foreign demand for dollar-denominated commodities like gold.

Investors also sold so-called safe-haven assets like gold as tensions eased between the U.S. and North Korea for at least a day. However, investors should note that the concerns over North Korea remain elevated.

December Comex Gold futures settled at $1301.70, down $9.80 or -0.75%.

The U.S. Dollar was underpinned on Tuesday by both a weaker Euro and the somewhat hawkish remarks from Fed Chair Yellen. The Euro remained under pressure due to political uncertainty in Germany stemming from mixed election results over the week-end. The dollar was driven higher by Yellen’s remarks on the need to continue with rate hikes.

Yellen’s comments combined with a rise in U.S. Treasury yields and reduced fears over North Korea helped make the U.S. Dollar a more attractive investment.

The highlight of the day on Tuesday was a speech by Fed Chair Janet Yellen. She essentially said that the Fed may have overstated the labor market’s strength and rate of inflation, indicating future monetary policy will be more accommodative than previously thought.

Yellen also said the case for a gradual pace of adjustment is strengthened in the face of “significant uncertainties.” She also said the Fed should be “wary of moving to gradually” especially since “persistently easy monetary policy” might have “adverse implications for financial stability.”

Fed Chair Janet Yellen emphasized that the Federal Reserve needs to continue to continue gradual rate hikes despite broad uncertainty about the path of inflation. Finally, she added it “would be imprudent to keep monetary policy on hold until inflation is back to 2 percent.”

Traders interpreted Yellen’s remarks as hawkish which pressured gold. Losses may have been limited by a mixed performance in U.S. equity markets.

Forecast

With expectations for a Fed rate hike rising, U.S. economic data is going to take on added importance. Therefore, we may start to see increased volatility tied to the reports especially if they have an impact on Treasury yields and the U.S. Dollar.

Today, investors will get the opportunity to react to a U.S. Durable Goods report. Core Durable Goods Orders are expected to rise 0.2%, down from the previous 0.6%. Durable Goods Orders are expected to rise 1.0%, up considerably from the previous 6.8% read.

Pending Home Sales are forecast to come in at -0.5%, a slight improvement from the previous -0.8%.

At 1800 GMT, Federal Open Market Committee Member Lael Brainard is scheduled to speak. On Tuesday, Brainard said the uneven distribution of employment in the U.S. economy is curbing the nation’s long-run potential growth. She also urged the central bank to undertake more research to help diminish inequality. She did not make any comments on monetary policy or the direction of rates.

Earlier in the month on September 5, Brainard said the Federal Reserve may have to slow down the pace of interest rate hikes given the recent low readings for inflation.