Price of Gold Fundamental Daily Forecast – Falling Crude Could Actually Support Gold

Gold tested a five-week low on Tuesday, driven lower by a stronger U.S. Dollar. The focus for gold traders continues to be on the direction of U.S. interest rates.

On Tuesday, August Comex gold futures settled at $1244.10, down $2.60 or -0.21%. Early Wednesday, gold is rebounding slightly at $1246.60, up $3.00 or +0.24%.

The latest pressure on gold was triggered by last week’s decision by the Fed to raise interest rates 25-basis points despite signs of lower inflation.

Gold was further pressured this week by hawkish comments from New York Fed President William Dudley on Monday. Dudley said that labor market tightness should help drive up inflation. This supported the message delivered by Fed Chair Janet Yellen last week that recent weak data is unlikely to derail plans to keep raising interest rates.

On Tuesday, Boston Fed President Eric Rosengren said that the era of low interest rates in the U.S. and elsewhere poses financial stability risks and that central bankers must factor such concerns into their decision-making.

Dallas Federal Reserve Bank President Robert Kaplan on Tuesday expressed doubt that short-term interest rates are very accommodative and said he wants to wait for more data to understand whether recent weak inflation readings are transitory as he suspects.

The U.S. Dollar was also boosted by comments from Bank of England Governor Mark Carney. He doused speculation that he was considering higher interest rates in the near-future. He told bankers that he first wanted to see how the economy coped with Brexit talks in coming months.

Forecast

Short-covering due to oversold conditions could boost gold prices over the next few days. On Wednesday, traders could react to the U.S. Existing Home Sales report. A bearish report could help underpin prices.

Gold traders should also pay attention to crude oil prices. The market is now down 20 percent from its top, which puts it in a bear market. Lower energy prices should continue to drag inflation lower which could curtail the Fed’s plans to raise rates at least one more time in 2017.

Lower stock prices could also provide support for gold if investors decide to park money into safe haven assets like gold and the Japanese Yen.