Price of Gold Fundamental Daily Forecast – Gold Needs Weak CPI Report to Continue Rally

Gold futures finished lower on Thursday after an attempted rally failed to gain enough traction to continue the move. Gains were capped by steady U.S. Treasury yields, increased demand for risky assets and position-squaring ahead of Friday’s key U.S. Consumer Inflation report and latest Retail Sales data.

August Comex Gold futures came in at $1217.40, down $1.70 or -0.14%.

Gold was supported earlier in the week after a decline in U.S. Treasury yields drove down the U.S. Dollar against a basket of currencies. This increased demand from foreign investors for the dollar-denominated precious metal. The catalyst behind the movement was U.S. Federal Reserve Chair Janet Yellen who delivered a less-hawkish than expected assessment of inflation and the direction of interest rates. She delivered her message to the Senate Banking Committee on Wednesday and Thursday.

A statement by Yellen on Wednesday sparked this week’s rally in gold. She essentially said the U.S. economy is healthy enough for the Fed to raise interest rates, though inflation and a low neutral rate could leave the central bank with diminished leeway.

Forecast

With Yellen’s testimony over, investors have only her words and fresh economic data today to dictate the direction of gold prices. Since the theme of Yellen’s remarks seemed to center on inflation, today’s U.S. Consumer Inflation report takes on added importance.

The CPI report, due to be released at 1230 GMT, is expected to come in at 0.1%, up from the previous -0.1%. Core CPI is forecast to show a 0.2% rise, up from 0.1%.

Gold could erase the gains attributed to Yellen’s dovish comments if the CPI comes out well above the forecast. The rally could extend even further if the number comes out as expected or lower.

Traders will also have the opportunity to react to the latest report on retail sales. Retail Sales are expected to rise 0.1%, up from -0.3% and Core Retail Sales are estimated at 0.2%, up from 0.1%.

Three big banks, JPMorgan Chase, Citigroup and Wells Fargo could also determine the direction of gold prices on Friday. This is because “risk on” or demand for higher-yielding assets is helping to put a lid on any gold rallies.

If the earnings reports from these banks come out bearish then stocks could plunge. This could then send investors into the safe-haven gold market. Bullish earnings news could send stocks soaring which would cap any gains from a bearish CPI report and could even send gold prices lower.

Basically, stronger CPI data will be bearish for gold. Weaker CPI data will be bullish for gold, but also bullish for stocks which would limit the gains in the gold market.