Price of Gold Fundamental Daily Forecast – FOMC Mester says Inflation May Not Rise “Sharply”

A weaker U.S. Dollar is helping to stabilize gold prices early Monday, but the buying hasn’t been strong enough to sustain a rally. The dollar is being pressured and gold supported by speculators betting the Fed will take a slower approach toward raising interest rates.

At 0826 GMT, June Comex Gold futures are trading $1320.50, down $0.20 or -0.02%. The June U.S. Dollar Index is at 92.24, down 0.171 or -0.19%.

In other news, SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, said its holdings fell 0.62 percent to 857.64 tonnes on Friday from 862.95 tonnes on Thursday.

Hedge funds and money managers raised their net long positions in COMEX gold contracts in the week to May 8, U.S. Commodity Futures Trading Commission (CFTC) data showed on Friday.

Early Monday, Cleveland Fed President Loretta Mester said the Federal Reserve may have to raise interest rates to a restrictive level, for some time, in order to meet its twin goals of stable inflation and low unemployment.

“As the expansion continues, it could be that in order to maintain our policy goals, we may need to move the fed funds rate, for a time, a bit above the level of the funds rate that is expected to prevail over the longer run,” Mester said in a speech early in the morning in Paris, France.

The Cleveland Fed president also said she does not see inflation rising “sharply”. Therefore, the Fed can keep on its path of continued gradual rate hikes, she said.

Forecast

There are no major reports today so the direction of gold could end up to be a coin flip.

Last week, the trend changed to up on the daily chart, but Friday’s reversal top suggests the buying may already be weakening. Taking out $1326.30 will negate the reversal top and signal a resumption of the uptrend. The primary upside target is $1335.90.

On the downside, taking out $1317.00 will confirm the reversal top. This could drive prices into $1315.30. Buyers could come in on the dip.

The last two major bottoms are $1304.20 and $1302.30. They were formed inside a major retracement zone at $1311.40 to $1296.20.

The direction of Treasury yields is influencing gold prices more than the movement in the dollar. This is what investors should focus on over the near-term.

Last week’s soft U.S. consumer inflation data may have put in a temporary top in yields. This may be supportive for gold. Position-squaring ahead of the June Fed meeting at which the central bank is expected to raise its benchmark rate 25 basis points may also provide some support. Gains could be limited by increased appetite for risk like the stock market.