Price of Gold Fundamental Daily Forecast – Fed Not Likely to Move Gold, but Flight-to-Safety into Dollar Could

Gold futures are trading lower early Wednesday ahead of the U.S. Federal Reserve interest rate decision and monetary policy statement at 1800 GMT. However, the early price action is not being driven by anticipation of the Fed’s words of wisdom, but rather by a stronger U.S. Dollar.

At 0737 GMT, December Comex gold futures are trading $1230.40, down $3.20 or -0.25%

Most traders expect the Fed to leave interest rates and policy unchanged. It may mention in its statement concerns over trade disputes potentially slowing down the economy, but like Fed Chair Powell said in July in his testimony before Congress, he won’t have an official comment until he sees some data.

In economic news on Tuesday, consumer spending in the U.S. rose by 0.4 percent in June, while personal income grew at the same rate. The Conference Board’s Consumer Confidence beat the estimate with a 127.4 reading.

It wasn’t economic news that drove gold prices higher on Tuesday, but rather a report from Bloomberg that the U.S. and China may restart official talks about their months-long trade dispute.

Bloomberg News reported, citing two sources that representatives of U.S. Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He are in private talks to resume negotiations on trade matters in a bid to avoid a trade war. Mnuchin had told CNBC last week that “quiet conversations” with Beijing continued to take place.

Forecast

There has been no follow-through to the upside following Tuesday’s rally, this is because uncertainty has been raised regarding the resumption of trade negotiations between the U.S. and China.

Prices began to weaken early Wednesday after a report surfaced stating that the Trump administration plans to propose slapping a 25-percent tariff on $200 billion of imported Chinese goods after initially setting them at 10 percent, in a bid to pressure Beijing into making trade concessions, a source familiar with the plan said on Tuesday.

The source also told CNBC that the Trump administration could announce the tougher proposal as early as Wednesday. The new plan more than doubles the tariff rate first reported by Bloomberg News on July 10.

This news drove investors into the safety of the U.S. Dollar. And we all know from past experience that a stronger dollar is bad for dollar-denominated assets like gold.

I don’t think the Fed will say anything supportive for gold, but Trump could trigger a steep break if he makes another tariff announcement.