Price of Gold Fundamental Daily Forecast – Headline Sellers Smoked by ‘Sell the Rumor, Buy the Fact’ Reaction

Gold futures are trading higher on Thursday, primarily supported by lower Treasury yields and a weaker U.S. Dollar. Since the rally follows a major U.S. Federal Reserve decision and a substantial sell-off in prices, it suggests a “sell the rumor, buy the fact” reaction. In other words, don’t read into it just yet.

Gold prices rose on Wednesday as the dollar reversed lower after the U.S. Federal Reserve decided to end its pandemic-era bond purchases in March. The move by the Fed was well-telegraphed by policymakers for weeks, allowing gold traders to make position adjustments well ahead of the Fed’s official announcements. If you recall, Fed Chairman Jerome Powell even told Congress earlier in December the Federal Open Market Committee would discuss a faster tapering. So basically, overall the news was expected with a few tweaks here and there.

At 11:21 GMT, February Comex gold is trading $1788.50, up $24.00 or +1.36%. On Wednesday, SPDR Gold Shares ETF (GLD) settled at $166.14, up $0.70 or +0.42%.

Fed Essentially Meets Gold Investor Expectations

Ahead of the Fed announcements, gold traders were pricing in a faster tapering and at least two interest rate hikes in 2022. The Fed essentially met their expectations but did add an extra rate hike.

Following its two-day policy meeting, the Fed announced Wednesday that it would be buying $60 billion of bonds a month starting in January. This is half the level it bought prior to the November taper and $30 billion less than in December.

The Fed was tapering by $15 billion a month in November, doubled that in December, and will accelerate the reduction further come 2022.

This would see the central bank wrap up its tapering program by late winter or early spring.

Fed officials expected as many as three rate hikes in 2022, according to the central bank projections released on Wednesday.

Fed’s Powell:  Economy No Longer Needs Increasing Support from Asset Purchases

Federal Reserve Chair Jerome Powell on Wednesday said the U.S. economy is improving quickly and no longer needs the “increasing support” provided by its asset purchases, making it appropriate to conclude that program earlier than previously projected.

“The economy no longer needs increasing amounts of policy support,” he said.

Powell also added that the pace of inflation is uncomfortably high, and “in my view, we are making rapid progress toward maximum employment,” a combination of circumstances that has now convinced all Fed officials, even the most dovish, that it is time to exit more fully the pandemic policies put in place two years ago.

Daily Outlook

The early strength suggests gold traders are happy that the Fed removed some of the uncertainty that had been keeping traders on the sidelines.

What we are seeing in the market on Thursday is price action that accompanies a “sell the rumor, buy the fact” scenario. The retail brokers trade the headlines. They go long when the headlines mention roaring inflation then bailout when the headlines show the Fed is tightening. They don’t seem to understand that the markets discount future events.

So while the headlines were reporting record consumer and producer inflation, professionals were selling to the retail speculators. The pros were pricing in the hawkish Fed, the amateurs were banking on inflation to rise forever.

The rookies sold the hawkish Fed on Wednesday while the professionals booked profits and covered shorts.

Our work indicates strong support at $1781.00 to $1757.10. The main top at $1794.20 is a potential trigger point for an acceleration to the upside with $1819.30 – $1817.50 the primary upside target.