Price of Gold Fundamental Daily Forecast – Edging Higher Despite Uncertainty Over CPI, Fed Tapering Decision

Gold futures are trading higher for a third session on Tuesday as buyers continue to claw back last Thursday’s steep decline. The price action suggests investors may be betting on higher-than-forecast inflation in Thursday’s U.S. consumer inflation report and perhaps a dovish Federal Reserve in next week’s central bank monetary policy decision.

At 12:37 GMT, August gold is trading $1905.50, up $6.70 or +0.35%.

Despite our bullish assessment, we are concerned about the low trading volume. Some of the major players may be sitting on the sidelines ahead of Thursday’s CPI report, thereby allowing a few aggressive traders to push prices around. We respect the move, but are being cautious about buying strength because of the possibility of whipsaw price action.

Earlier in the session, gold was pressured as a stronger U.S. Dollar dimmed appetite for bullion. These investors were likely betting on the Fed offering clues in next week’s monetary policy statement about when the central bank would begin tapering its monetary stimulus.

Gold is likely to be influenced by several factors this week, but ultimately, next week’s Fed decision should set the near-term tone.

One factor steering the price action is the U.S. Dollar. I think it’s important to note that speculators decreased their net short dollar positions in the latest week, according to calculations by Reuters and U.S. Commodity Futures Trading Commission data released on Friday. Gold could be pressured if this trend continues.

Gold traders are also monitoring the consumer price estimates ahead of this week’s report to see if there are any drastic changes. On Thursday, June 10, investors will get the opportunity to react to the latest CPI and Core CPI reports. Consumer inflation for May is expected to have risen by 0.4%, down from 0.8% in April. Core CPI is expected to have risen by 0.4%, down from 0.9% in April.

Market participants also took stock of U.S. Treasury Secretary Janet Yellen’s comments that President Joe Biden’s $4 trillion spending plan would be good for the U.S., even if it contributes to rising inflation and results in higher interest rates.

Finally, in addition to Thursday’s U.S. consumer inflation report, on investors’ radar is the European Central Bank’s (ECB) policy meeting, scheduled for the same day. This is important because it could influence the direction of the U.S. Dollar.

Short-Term Outlook

We’re still of the opinion that if the CPI numbers come out higher than expected once again, the debate about an earlier Federal Reserve exit from its accommodative monetary policy could flare up again. This would drive up Treasury yields, and pressure gold prices, at least in the short-run. Additionally, the U.S. Dollar would likely appreciate.