Price of Gold Fundamental Daily Forecast – Hawkish Fed Officials’ Comments Dampen Gold’s Investment Appeal

Gold futures are edging lower early Thursday, confirming the previous session’s technical closing price reversal top, as Treasury yields rebounded and the U.S. Dollar firmed after hawkish comments by a pair of Federal Reserve policymakers leaned toward further aggressive interest rate hikes, despite indications of slowing inflation in the world’s largest economy.

At 06:29 GMT, December Comex gold futures are trading $1801.70, down $12.00 or -0.66%. On Wednesday, the SPDR Gold Shares ETF (GLD) settled at $166.84, down $0.36 or -0.21%.

Following the release of softer-than-expected U.S inflation data, Treasury yields dropped and the U.S. Dollar retreated to a one-month low against a basket of major currencies. However, by the end of the day, both yields and the dollar bounced back, putting pressure on gold prices.

The reason for the rebound in yields and the greenback were hawkish comments from two Fed officials who said the central bank still needs to raise rates, which would be bearish for gold. Rate hikes tend to weaken demand for bullion because the previous metal doesn’t pay interest or a dividend.

Hawkish Fed Officials Dampen Gold’s Investment Appeal

Despite data showing U.S. consumer prices did not rise in July due to a sharp drop in the cost of gasoline, lifting hopes that the Fed would be less aggressive on its tightening plans going forward, Gold prices fell on Wednesday.

Traders blamed Fed policymakers for the weakness after they said they would continue to tighten monetary until price pressures were driven back to the Fed’s 2% mandate.

Minneapolis Federal Reserve Bank President Neel Kashkari on Wednesday said he is sticking to his view that the U.S. central bank will need to raise its policy rate another 1.5 percentage points this year and more in 2023, even it that causes a recession.

Kashkari also pushed back on market expectations for rate cuts to begin early next year, saying they are “not realistic.” Rates are not likely to be cut “until we get convinced that inflation is well on its way” to the Fed’s 2% target, he said.

Meanwhile, Chicago Fed President Charles Evans said Wednesday’s consumer price index report showing U.S. inflation didn’t accelerate in July was the first “positive” reading on price pressures since the Federal Reserve began tightening policy. He also signaled he believes the Fed has plenty more work to do.

Daily Forecast

The combination of the softer-than-expected CPI data and the hawkish Fed comments is likely to hold gold in a trading range and drive up the chances of a 50 or 75 basis point rate hike to 50/50 until there is clear cut evidence for the Fed to act upon. That includes another jobs report in September and further inflationary evidence like the Fed’s preferred measure of inflation – the PCE.

On Thursday, traders will get the opportunity to react to the latest figures on producer price inflation. Like the CPI report, the PPI numbers are expected to come in weaker than the previous month. Current estimates indicate a 0.2% rise in PPI, down from 1.1% for June. Core PPI is expected to come in at 0.4%, matching last month’s reading.

Stronger-than-expected numbers could be bearish for gold prices. Softer readings could provide some support.