Price of Gold Fundamental Daily Forecast – Fed May Wait Until Jackson Hole Before Announcing Tapering Decision

Gold futures have been trading sideways this week as investors positioned themselves ahead of the start of the Federal Reserve’s two-day meeting on Tuesday. Traders aren’t expecting the Fed to announce anything major like a rate hike, but it could reveal that policymakers seriously discussed the gradual ending of its bond stimulus program, also known as tapering.

Gold is getting some support from the fact that both the ECB and Fed have suggested they will keep monetary policy accommodative for some time. However, traders are still nervous about the tone the Fed could take in tomorrow’s policy statement. While traders aren’t expecting a rate hike, but that the Fed may be seriously discussing tapering, traders aren’t so sure about the pace or the kind of reductions it plans to implement to reduce its balance sheet.

The Fed can announce it will stop buying Treasuries and mortgages in the open market. That is the widely accepted first move. But it could also say that it will begin reducing its portfolio by selling bonds and mortgages on the open market at such and such date. The market seems to have absorbed the moving forward of future rate hikes from the June policy statement, now traders want to be able to price in the start of tapering, but need to know a little about what the Fed plans to do.

Some analysts believe the Fed will be intentionally evasive in its statement, but may be saving the actual tapering announcement for the central banker annual summit at Jackson Hole in August. If this were to occur then gold traders could expect more sideways action until the middle of August.

What to Expect from the Fed:  Tapering Talk and Policy Normalization

According to the analysts at ING, “While no Federal Reserve policy changes are expected in July’s meeting, we could hear more about the tapering discussions that started in June. The volume surrounding this issue is likely to be turned up at the August Jackson Hole conference with the risks remaining skewed towards earlier policy normalization that the Fed is currently signaling.”

Ahead of the Fed announcements, gold traders are encouraged to recall what Chairman Jerome Powell made clear in his recent testimony to Congress that he continues to believe inflation pressures are largely transitory and there isn’t any pressing need to signal an imminent shift in policy. His assessment blows up the thought that investors should buy gold because of inflation concerns.

Furthermore, employment levels remain more than 6 million lower than before the pandemic started while the latest COVID-19 wave adds another level of uncertainty that can be used to justify inaction by the central bank. This assessment is supportive for gold prices because it is essentially a dovish stance.

Daily Forecast

The price action suggests traders believe the Fed is going to say something that is “not too hot, or not too cold.” If they do then we can expect more sideways action until Jackson Hole when policymakers are expected to announce the start of tapering. By then the Fed should know enough about the labor market and consumer inflation to make a rational decision about tapering.