Price of Gold Fundamental Daily Forecast – Firm US Dollar Weighs on Gold as COVID Worries Rise

Gold futures are under pressure on Friday after hitting a one-month high the previous session. Nonetheless, the market is trading up $8.00 for the week, putting it in a position to post its fourth straight weekly rise. Weighing on gold prices today is a stronger U.S. Dollar and a rebound in Treasury yields. Despite today’s setback, the market is being underpinned by the Fed’s dovish stance on monetary policy.

At 11:40 GMT, August Comex gold is trading $1817.20, down $11.80 or -0.65%.

In other news, holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell 0.3% to 1,034.37 tonnes on Wednesday, its lowest in nearly two months.

Powell Acknowledges Elevated Inflation, but Says It Will Likely Moderate

Federal Reserve Chair Jerome suggested Wednesday that inflation, which has been surging as the recovery strengthens, “will likely remain elevated in coming months” before moderating.

At the same time, Powell signaled no imminent change in the Fed’s ultra-low-interest rate policies.

Powell told the House Financial Services Committee that high inflation readings over the past several months have been driven largely by temporary factors, notably supply shortages and rising consumer demand as pandemic-related business restrictions are lifted.

Once such factors normalize, Powell said, inflation should ease. Yet the Fed chair did not repeat in his testimony an assertion he made three weeks ago before another House panel that inflation would “drop back” to the Fed’s target of 2%.

The Fed Chair also suggested in his testimony Wednesday that the economy is “still a ways off” from making the “substantial further progress” that the central bank’s policymakers want to see before they will begin reducing their $120 billion in monthly bond purchases. Those purchases are intended to keep long-term borrowing rates low to encourage borrowing and spending.

US Dollar on Track for Weekly Gain amid Virus Concerns

The U.S. Dollar was headed for a weekly gain against a basket of currencies on Friday, supported by investors’ drift toward safety as rising COVID-19 infections loomed over the pandemic recovery.

Additionally, solid U.S. data and a shift in interest rate expectations after the Federal Reserve flagged in June sooner-than-expected rate hikes in 2023 have put a floor under the greenback over the past month and made investors nervous about shorting it.

Treasury Yields Rise

U.S. Treasury yields rose on Friday morning after Federal Reserve Chairman Jerome Powell acknowledged in a Senate testimony that inflation was “well above target.”

Inflation and employment growth are both determining factors as to when the Fed will tighten its easy monetary policy.

“We’ve said that we would begin to reduce our asset purchases when we feel that the economy has achieved substantial further progress measured from last December,” Powell said Thursday. “We’re in active consideration of that now.”

Daily Forecast

Thursday’s buying looked a little tentative, and the high for the session was essentially reached when weekly initial claims came in better than expected. This pattern is likely to repeat on Friday if the U.S. Retail Sales report, due to be released at 12:30 GMT, comes out better than expected. Traders are looking for 0.4% growth.

Preliminary University of Michigan Consumer Sentiment, due to be released at 14:00 GMT, could also be a market mover on Friday. It is expected to come in at 86.5, up slightly from 85.5.

Essentially, the U.S. Dollar seems to be driving the price action this week and to a lesser extent, U.S. Treasury yields.

Gold could get hit hard if the September U.S. Dollar Index breaks out over 92.840.