Price of Gold Fundamental Daily Forecast – Fed News Taking Backseat to Geopolitical Concerns in Italy

Gold futures are trading slightly lower on Thursday, but inside yesterday’s trading range, suggesting investor indecision. Although yesterday’s Fed announcements fueled an intraday sell-off, the move stayed inside the market’s two-month range so we have to conclude they had a neutral impact on gold prices.

Pressuring gold prices is another rate hike and expectations of another rate in December and perhaps as many as three more in 2019. Underpinning gold, however, is a change in the language in the Fed’s monetary policy statement and comments from U.S. Federal Reserve Chairman Jerome Powell. This suggest a more “dovish” scenario moving forward.

At 1232 GMT, December Comex Gold is trading $1194.70, down $4.40 or -0.37%.

To recap Wednesday’s key events, although the Fed raised its target overnight rate by 25-basis points to a range of 2 percent to 2.25 percent, up from 1.75 percent to 2 percent, the central bank dropped the word “accommodative” from it statement in how it describes its monetary policy.

That move raised the most questions with some traders saying this likely means that the Fed no longer believes its policy is accommodative, and it’s likely closer to being done with its rate hikes. The initial price action suggested the market first interpreted the word’s removal as “the end of the Fed tightening cycle.” However, Powell said the removal of that word does not signal any change in the bank’s path toward normalizing monetary policy.

Powell also moved the markets when he said he does not see a buildup in fundamental inflation and does not anticipate prices surprising to the upside.

“The main thing where we might need to move along a little bit quicker if inflation surprises to the upside. We don’t see that,” Powell told reporters during his quarterly news conference Wednesday.

Forecast

Gold could remain rangebound on Thursday because of geopolitical developments in Italy. These concerns are driving up demand for the safe haven U.S. Dollar and U.S. Treasury instruments. So we essentially have a situation where the dollar is rallying despite a drop in U.S. Treasury yields.

While falling yields are typically supportive for gold prices, in this case the strength in the U.S. Dollar is helping to cap gains.

The conflict between the “dovish” Fed, which could be supportive for gold, and the strengthening U.S. Dollar, which is usually bearish for gold could hold the market in a range. However, as we’ve seen in the past, short-sellers have a tendency to beat on gold prices during periods of geopolitical uncertainty so we are developing a downside bias.

The direction of gold prices today will be determined by trader reaction to the month-long support zone at $1193.90 to $1187.60. If this area holds as support then gold will remain rangebound.

However, if $1187.60 is taken out with strong volume, we could see a further decline to $1167.10 over the near-term.