Price of Gold Fundamental Daily Forecast – Fed Speakers Say Just Enough to Sustain Rally

Gold futures are inching lower early Tuesday after bumping up against a key technical resistance level for a second straight session. The short-term fundamentals, however, are bullish and are likely to remain that way until investors get some clarity on the timing of its first rate hike. Monday’s comments from Fed officials did little to reveal the Fed’s timetable, underpinning the market.

At 05:56 GMT, December Comex gold futures are trading $1826.90, down $1.10 or +0.06%.

Slow to Move Fed Supporting Rally

Last week, the dovish Fed set the wheels in motion for the current rally. Since the Fed doesn’t have a meeting scheduled until December, traders are left to follow central bank speakers and economic data.

Friday’s better-than-expected U.S. Non-Farm Payrolls report was bullish for gold because investors know it’s going to take more than one strong jobs report to change the Fed’s opinion on the timing and frequency of its future rate hikes.

Before last week’s Fed announcements gold prices were being manipulated by Treasury yields. Rising yields kept a lid on the market. Rising rate hike expectations were also capping gains. Now that the Fed has revealed some of the criteria necessary for its first rate hike, bullish gold traders can trade with confidence because the Fed is not going to change its mind overnight.

The first major test for gold will be Wednesday’s U.S. consumer inflation (CPI) report. If it comes in well above expectation, or “too hot”, gold could initially rally then weaken because this could move the Fed closer to an early rate hike. If the numbers come in as expected then look for gold to rally. Technically, a high volume breakout over $1839.00 could trigger an acceleration to the upside.

Fed Officials Offer Varying Opinions on Rate Hike Timing

Fed Vice Chair Richard Clarida said that while the U.S. central bank remains “a ways away from considering raising interest rates,” if the current outlook for the economy proves correct, then the “necessary conditions for raising the target range of the federal funds will have been met by year-end 2022.”

Inflation to date already presents “much more than a ‘moderate’ overshoot of our 2% longer-run inflation objective, and I would not consider a repeat performance next year a policy success,” Clarida said.

In separate remarks St. Louis Federal Reserve Bank President James Bullard repeated his outlook that the Fed will need to raise rates twice next year – with U.S. job markets already so tight it is adding to inflation through growing wage and compensation costs.

“If inflation is more persistent than we are saying right now, then I think we may have to take a little sooner action in order to keep inflation under control,” Bullard said.

Fed Governor Michelle Bowman echoed those concerns in a separate appearance later in the day.

“We are making great strides toward our maximum employment goal and I’m watching for signs that the labor market might become too hot,” Bowman said. “But my main concern again is the outlook for inflation, which has remained elevated much longer than most of us expected earlier in the year.”

“I don’t expect that the federal funds rate will rise before the tapering is complete,” Philadelphia Fed President Patrick Harker said. “But we are monitoring inflation very closely and are prepared to take action, should circumstances warrant it.”

Finally, Chicago Fed President Charles Evans said, “I still tend to think we have time to be patient,” he said.

Short-Term Outlook

Judging from the opinions of the Fed speakers, gold traders still have more time to enjoy the upside. Now that the market has crossed to the bullish side of a pair of 50% levels at $1800.00 – $1795.00, in order to sustain the rally, these levels have to hold as support.

The next major move will be determined by trader reaction to $1839.00. This is a potential trigger point for a breakout to the upside with $1919.00 – $1922.00 the next likely target area.