Price of Gold Fundamental Daily Forecast – Firm Prices Suggest Traders Looking for Accommodative Tone from Fed

Gold futures are inching higher shortly before the regular session opening and the U.S. Federal Reserve interest rate and monetary policy decisions at 18:00 GMT. Fed Chair Jerome Powell will also hold a press conference and policymakers will issue their latest forecasts on the economy and interest rates.

Gold is up for a third session this week after getting crushed last week by strong demand for higher-risk assets and a surge in U.S. Treasury yields. A weaker U.S. Dollar is also helping to drive foreign demand for the dollar-denominated commodity.

At 10:12 GMT, August Comex gold is trading $1724.80, up $2.90 or +0.17%.

Fed Expected to Shed Light on State of Economy, Further Stimulus

Gold traders are adopting a cautious stance as they await the Fed’s monetary policy statement, followed by a press conference from Chairman Jerome Powell. Policymakers will also publish their first economic projections since the pandemic set off a recession in February.

Traders expect the Fed will maintain its accommodative policy to support the U.S. economy through the coronavirus crisis. Although May’s employment data showed the U.S. economy did add some jobs, it was just one report and it doesn’t necessarily mean the coronavirus-related economic crisis is over.

Traders will also be looking for guidance from the Fed as to whether the economic recovery will be V-shaped or whether stock market investors have guessed wrong in assuming a V-shaped recovery.

Easy monetary policy tends to benefit non-yielding gold because it puts pressure on Treasury yields, which weighs on the U.S. Dollar. This is why gold investors will be looking for any comments from the Fed regarding flattening the yield curve.

Last week, yields surged in a move that probably drew the attention of Fed policymakers. If the Fed wants to hold rates near zero over the long-term then it is going to have to be able to control Treasury yields. This can do this by flattening the yield curve.

Daily Forecast

If the Fed announces its intentions to flatten the yield curve then look for gold prices to move higher.

Furthermore, if the Fed sets a negative tone that rattles Wall Street, then demand would shift back into gold.

If the Fed makes no comment about flattening the yield curve, or if it presents a more optimistic view about the economy then sellers could regain control after three days of counter-trend buying.

For a look at all of today’s economic events, check out our economic calendar.