Price of Gold Fundamental Daily Forecast – Gains Capped by Hawkish Fed Expectations

Gold futures are inching lower on Friday amid a stronger U.S. Dollar and nearly flat U.S. Treasury yields. Nonetheless, the market is still on track to finish higher for the week.

Surprisingly softer consumer and producer inflation numbers on Wednesday and Thursday failed to move the market higher this week although they cooled expectations of an aggressive rate hike by the Fed. This suggests that gold traders are buying into the notion that the Fed will have to continue on a path of aggressive rate hikes.

At 11:08 GMT, December Comex gold futures are trading $1803.60, down $3.60 or -0.20%. On Thursday, the SPDR Gold Shares ETF (GLD) settled at $166.35, down $0.43 or -0.26%.

Firm Dollar Capping Gains

The U.S. Dollar is edging higher against a basket of currencies on Friday amid a concession by traders that the Fed will have to do a lot more to contain inflation. This suggests this week’s shifting in the odds of a 75 basis-point rate hike to a 50 basis-point in September may have just been a knee-jerk reaction to softer-than-expected declines in consumer and producer inflation in July.

What traders may have initially ignored is the fact that inflation remains at elevated levels and that the Fed has to remain aggressive over the short-run if it wants to drive inflation back to the mandated 2% level.

A stronger U.S. Dollar will reduce foreign demand for dollar-denominated bullion.

SF Fed President Mary Daly Joins Growing List of Hawkish Fed Members

San Francisco Federal Reserve President Mary Daly joined a growing list of Fed officials calling for the central bank to continue on its aggressive tightening path.

Daly warned it is far too early for the U.S. central bank to “declare victory” in its fight against inflation, the Financial Times reported on Thursday.

In an interview with the Financial Times, Daly did not rule out a third consecutive 0.75% point interest rate rise at the central bank’s next policy meeting in September, however, she said that a half-percentage point rate rise was her “baseline”.

“There’s good news on the month-to-month data that consumers and businesses are getting some relief, but inflation remains far too high and not near our price stability goal,” the newspaper quoted Daly as saying during the interview conducted on Wednesday.

Daily Forecast

Slowing U.S. inflation may have opened the door for the Federal Reserve to temper the pace of coming interest rate hikes, but policymakers left no doubt they will continue to tighten monetary policy until price pressures are fully broken.

We may see some periodic volatility and counter-trend moves over the near-term since the Fed’s next move is expected to be data dependent. However, rising rates and a firmer U.S. Dollar are likely to keep a lid on gold prices