Price of Gold Fundamental Daily Forecast – Even Bullish CPI Data Won’t Stop the Upside Momentum

Flight-to-safety buying helped drive gold higher for a third straight day on Thursday. The market hit a two-month high as investors continued to react to an additional exchange of threats by the United States and North Korea.

December Comex Gold futures settled the session at $1290.10, up $10.80 or +0.84%. This put the market within striking distance of its June 6 main top at $1305.50.

According to reports, North Korea said it was completing plans to fire four intermediate-range missiles over Japan to land near the U.S. Pacific island territory of Guam. This news spooked holders of higher-risk assets enough to move assets into so-called safe-haven assets like gold, U.S. Treasurys and the Japanese Yen.

So far it’s just been a war of words between the U.S. and North Korea so the rally has just been a normal reaction to the possibility of a geopolitical event. Speculative buying is expected to increase if the situation escalates to military action.

Also adding support to gold was disappointing U.S. economic data and dovish comments from a Fed official, which reduced the chances of a U.S. Federal Reserve interest rate

U.S. producer prices unexpectedly fell in July, pointing to a further moderation in inflation that could delay a Federal Reserve interest rate increase. U.S. PPI came in at -0.1%, below the 0.1% forecast and previous read. Core PPI was also down 0.1%, missing the 0.2% estimate.

Weekly Unemployment Claims rose unexpectedly by 224K. Traders were pricing in a read of 240K.

On Thursday, Federal Reserve Bank of New York President William Dudley offered a positive outlook for the U.S. economy, job market and inflation, saying better conditions would help support the most vulnerable Americans.

Dudley also cautioned that “it’s going to take some time” for inflation to rise to the central bank’s 2 percent target even as he offered a generally positive outlook for the U.S. economy, job market and price pressures.

“I do think I expect inflation to also start to move higher in the medium term but probably not get all the way back to 2-percent on a year-over-year basis, because, remember, we’ve had these very weak inflation readings for a number of month,” Dudley said. “So we’re not going to get to a year-over-year number of 2-percent until some of these very low readings drop out of the statistics 6 to 10 months from now.”

Forecast

On Friday, investors are expected to continue to monitor the situation between the U.S. and North Korea. Anymore threats from either side is likely to drive up gold prices. Traders are also likely to take long gold positions over the week-end because of heightened uncertainty and risk. This could cause a price surge into the close.

Traders will also get the opportunity to respond to fresh U.S. consumer inflation data on Friday. CPI for July is expected to show an increase of 0.2%. Core CPI is also expected to come in at 0.2%.

Lower-than-expected CPI data will be bullish for gold because it will reduce the chances of a Fed rate hike later this year.

Investors will also get the chance to react to remarks from FOMC members Kaplan and Kashkari. Kaplan tends to be hawkish so dovish comments would be a surprise and likely further boost gold prices. Kashkari is the most dovish Fed member and he is likely to remain that way especially if inflation misses the mark.