Price of Gold Fundamental Daily Forecast – Further Weakness if Fed Policymakers Start to Mention Need for Rate Hike

Last week, gold prices soared to multi-month highs after the U.S. Federal Reserve kept interest rates unchanged and said it would be patient on further rate hikes amid concerns for a weakening U.S. economy due to uncertainty over global economic growth and the U.S.-China trade dispute.
James Hyerczyk
Gold Bars and Dollar

Gold futures are trading lower but inside yesterday’s range. The price action suggests investor indecision and impending volatility. The primary influences on the current sell-off are rising U.S. Treasury yields and a stronger U.S. Dollar.

Rising Treasury yields tend to put pressure on gold because the precious metal doesn’t pay investors to own it. The stronger U.S. Dollar weakens gold prices because it tends to drive down foreign demand for the dollar-denominated asset.

At 11:20 GMT, April Comex gold futures are trading $1317.60, down $1.70 or -0.13%.

Gold may be moving up from yesterday’s low due to profit-taking and position-squaring, but strong demand for riskier assets is limiting gains. Low liquidity due to the Lunar New Year holiday in Asia may also be limiting the price action.

China Out of Picture This Week

Due to the Lunar New Year holiday, gold traders aren’t expecting to hear any news regarding U.S.-China trade relations. For that matter, U.S. stock market investors also won’t be receiving any updates. This puts the emphasis on corporate earnings. Strong earnings should continue to support stock market gains which should keep a cap on gold prices.

Fed Outlook May Change

Last week, gold prices soared to multi-month highs after the U.S. Federal Reserve kept interest rates unchanged and said it would be patient on further rate hikes amid concerns for a weakening U.S. economy due to uncertainty over global economic growth and the U.S.-China trade dispute.

However, Friday’s stronger-than-expected U.S. jobs and factory activity reports drove U.S. Treasury yields higher as investors reduced bets for a Fed rate cut later this year. This weighed on gold prices.

On Monday, Cleveland Fed President Loretta Mester said the central bank may need to raise interest rates a bit further if the economy does well.

Daily Forecast

Despite the dovish Fed, gold prices may be starting to price in at least one rate hike this year.

The early price action suggests a possible two-sided trade today with $1321.90 the nearest upside target and $1306.30 the closest downside target.

Later today, investors will get the chance to react to the latest data on Final Services PMI and ISM Non-Manufacturing PMI. The latter is expected to come in at 57.2, down from 57.6. Last week, ISM Manufacturing PMI came in well-above the forecast. This helped contribute to the sell-off in gold.

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