Price of Gold Fundamental Daily Forecast – Hawkish Fed Minutes Could Trigger Sell-Off

Gold rallied to its highest level in nearly two weeks on Tuesday, helped by a weaker U.S. Dollar and geopolitical tensions in Spain and North Korea. Gains, however, were limited by expectations of a third rate hike this year by the Fed.

December Comex Gold futures settled at $1293.80, up $8.80 or +0.68%.

In Spain, Catalonia’s secessionist leader Carles Puigdemont is due to address the region’s parliament in Barcelona, where he could ask the assembly to vote on a unilateral declaration of independence.

Traders remained concerned over a possible response by North Korea to confrontational Twitter posts from President Trump, hinting that military action was on his mind. Meanwhile, Russia and China both called for restraint from the President.

Short-term oversold conditions have been another catalyst behind this week’s rally. Longer-term, gold is expected to weaken because of the prospect of higher interest rates. As of Tuesday’s close, Fed funds futures showed traders were pricing in a nearly 90 percent chance of a December rate increase.

Forecast

Early on Wednesday, traders will get the chance to react to the JOLTS Job Openings report. It is expected to show 6.13 million new job openings versus 6.17 million the month before.

The highlight of the session will be the Federal Open Market Committee Meeting Minutes, due for release at 1800 GMT.

The Fed minutes are expected to show that inflation was the major topic of discussion. Fed Chair Janet Yellen in her press conference following the meeting noted that low inflation this year, despite a substantial improvement in labor market conditions, created uncertainty for monetary policymakers.

Near the end of her press conference, Yellen concluded that low inflation may be “transitory” and that it had not persisted long enough to negate the need for gradual policy tightening.

It should also be noted that several FOMC policymakers have indicated a preference for allowing inflation to pick up before raising interest rates any further.

We could see volatility in the gold market on Wednesday following the release of the Fed minutes if they show a wide range of views on inflation, financial stability, and the implications for policy. However, if the minutes are read a hawkish by traders, the dollar is likely to rise and gold fall.