Price of Gold Fundamental Daily Forecast – Flight Out of Risky Assets Will Send Cash Flowing into Gold

The gold market posted a wide range after recovering from early session weakness. However, the buying wasn’t strong enough to turn the market higher for the session. Despite the lower closer, it continued to remain close to its 7-month high.

Gold was supported by the possibility the Fed will refrain from further rate hikes this year due to reports of low inflation. Stock market weakness also signaled a drop in demand for higher risk assets. This may have sent some money into gold in the form of hedge protection.

December Comex Gold futures settled at $1274.40, down $4.00 or -0.31%.

Forecast

Not only will gold traders be watching the U.S. Non-Farm Payrolls report on Friday, but I think investors are going to ratchet-up their interest in the affairs of President Trump, following a report that a grand jury will investigate allegations of Russian meddling in the 2016 U.S. presidential election.

Yesterday’s recovery in gold was fueled by a weak report from the Institute for Supply Management (ISM) which showed its non-manufacturing index fell to 53.9 in July from 57.4 in June. This news drove U.S. Treasury yields lower because it increased doubts that the Federal Reserve would raise interest rates again in 2017.

Investors also sent money into gold and the Japanese Yen late in the session after U.S. stocks retreated into the close. The selling was fueled by a report indicating that investigators were turning up the heat on the Trump campaign’s involvement with Russia in influencing the U.S. election. Traders also felt that this news means the Trump administration’s economic agenda will be delayed further.

Yesterday’s report showing slowing services growth suggests a greater chance of payrolls disappointing on Friday. This would mean lower chances of a Fed rate hike which would keep gold underpinned.

Economists are looking for Friday’s U.S. Non-Farm Payrolls report to show employers added 183,000 jobs in July, down from 222,000 in June. The Unemployment Rate is expected to fall to 4.3%, down from 4.4% and Average Hourly Earnings are expected to rise slightly by 0.3% from 0.2% in June.

Average Hourly Earnings will be watch closely because they are a key indicator of inflation. Treasury yields and the Dollar are likely to weaken if this number misses the estimate because it will diminish the chances of a Fed rate hike later this year.

Going into the report, Fed funds futures implied a roughly 44 percent chance of a Fed rate hike in December, according to CME Group’s FedWatch tool.

A weaker than expected jobs report will be bullish for gold, but in order to send this market soaring to the upside, it is going to take a substantial break in the stock market. I don’t think there is enough cash on the sidelines to move gold substantially higher at this time, but if stocks break hard, money will flow into gold as investors will need somewhere to park their stock market profits.