Price of Gold Fundamental Daily Forecast – Fear of Super-Sized Fed Rate Hike Capping Gains

Gold futures are edging lower early Monday despite a dip in Treasury yields and a slightly weaker U.S. Dollar. The price action suggests traders are still assessing the impact of Friday’s robust jobs report on Fed policy, and general uncertainty ahead of Wednesday’s U.S. consumer inflation report (CPI).

At 06:10 GMT, December Comex gold futures are trading $1789.50, down $1.70 or 0.09%. On Friday, the SPDR Gold Shares ETF (GLD) settled at $165.29, down $1.88 or -1.13%.

Friday Recap

Gold prices were pressured on Friday after a strong U.S. Non-Farm Payrolls report for July raised the prospect of aggressive rate hikes by the U.S. Federal Reserve when policymakers meet in late September.

The surprise jump in all parts of the NFP report including – Employment Change, Unemployment Rate and Average Hourly Earnings – pushed back recession talk, while driving the benchmark 10-year Treasury yield to nearly its highest level in two weeks. The jump in yields also drove the U.S. Dollar Index to its highest level since July 28.

Rising yields tend to weigh on demand for non-yielding bullion, while a stronger greenback tends to dampen foreign demand for the asset.

Fed Official Calls for More Aggressive Rate Hikes to Fight Inflation

Helping to keep a lid on gold prices early Monday are hawkish comments from a Fed official over the weekend. On Saturday, Fed Governor Michelle Bowman said the U.S. Federal Reserve should consider more 75 basis-point interest rate hikes at coming meetings in order to bring high inflation back down to the central bank’s 2% mandate.

“I supported the FOMC’s decision last week to raise the federal funds rate another 75 basis points,” Bowman said in prepared remarks to a Kansas Bankers Association event in Colorado, referring to the Federal Open Market Committee that sets monetary policy. “My view is that similarly-sized increases should be on the table until we see inflation declining in a consistent, meaningful, and lasting way.”

Daily Forecast

The Fed’s Bowman was not the only FOMC member calling for aggressive rate hikes. Last week, a trio of FOMC members made similar comments that cast doubts on the Fed shifting from hawkish to dovish at its next meeting in late September.

Furthermore, Friday’s jobs report also torpedoed worries over a recession, despite other reports that suggested the U.S. economy was headed in that direction.

Gold is going to have a hard time mounting a serious rally due to both potentially bearish developments.

A shift in expectations of a 50 basis-point rate hike in September to a 75 basis-point rate hike is also potentially bearish. According to the latest FedWatch data, traders currently see a 73.5% probability the Fed continues the pace of 75 basis point rate hikes for its next policy decision on September 21 to tame soaring inflation.

This figure is likely to be impacted by Wednesday’s U.S. consumer inflation report. It is expected to show inflation hasn’t peaked yet.