Price of Gold Fundamental Daily Forecast – Fed Ambiguity May Hold Gold Rangebound Over Near-Term

Gold futures are inching higher on Monday after reversing most of its earlier gains as the dollar recouped some of its earlier losses in a mostly lackluster trade. The price action suggests investors are still trying to assess the short-term impact of the Federal Reserve’s new policy framework that indicated interest rates would remain near zero for some time.

At 11:36 GMT, December Comex gold futures are trading $1976.00, up $1.10 or +0.06%.

The Fed’s new monetary policy strategy suggested that the U.S. central bank’s key overnight interest rate, already near zero, would stay there for potentially years to come as policymakers attempt to “goose” higher inflation. Lower interest rates decrease the opportunity cost of holding non-yielding bullion, making it a more desirable investment.

On the surface, the Fed news is supportive for gold, but since it may take inflation a while to first reach the Fed’s mandate of 2% then move higher from there, investors don’t seem to be in too much of a hurry to buy gold. The last time inflation was at 2% was 2012.

Real rates are expected to ease further, which should lift gold, but ambiguity over the U.S. Federal Reserve’s September meeting is a risk. The initial reaction to the news suggests gold investors may prefer to sit in a trading range until they get more clarity from central bankers later in the month.

Furthermore, even though investors are betting that monetary and fiscal policies would stay super stimulatory for a protracted period, speculators reduced their bullish positions in COMEX gold and raised them in silver contracts in the week to August 25, suggesting they see better upside potential in silver.

Short-Term Outlook

There’s not much on the data radar on Monday, but FOMC Member Richard Clarida is scheduled to speak at 13:00 GMT. Traders are hoping he’ll provide some clarity about the potential impact of the Fed’s new policy move designed to push inflation higher.

As suggested by the early price action, the direction of gold on Monday is likely to be determined by the movement in Treasury yields, which should set the tone for the U.S. Dollar.