Price of Gold Fundamental Daily Forecast – Longs Exit as Inflation Rise May Mean More Aggressive Fed

Gold futures tumbled on Friday to their lowest level in more than a week as a surge in the U.S. Dollar spooked a number of weak longs out of the market. Meanwhile, a report showing U.S. inflation stayed hot last month put the focus back on the Federal Reserve’s policy meeting on November 2-3. Traders felt that rising inflation would encourage the Fed to be more aggressive in tightening policy.

On Friday, December Comex gold settled at $1785.00, down $17.60 or -0.98%.

Gold Traders Eyeing Fed Policy Moves

The U.S. Federal Reserve holds a two-day meeting on November 2-3. It is widely expected to begin to pare back its massive stimulus, but traders will be looking for clues as to the timing of its first rate hike and the frequency of other rate hikes.

US Inflation Data Fuels Sharp Decline

On Thursday, the 10-year rate rose despite disappointing third-quarter economic growth data. The Commerce Department reported that U.S. gross domestic product had risen 2% in the third quarter versus the previous year, below the 2.8% forecast by economists.

On Friday, personal income fell 1% in September, more than the 0.4% decline expected by economists, according to Dow Jones. Consumer spending rose 0.6%, matching expectations.

The core consumer price index rose 0.2% month over month, as expected, but the year-over-year change was the highest in three decades.

The University of Michigan’s final October consumer sentiment reading came in slightly better than expected at 71.7 but is well below levels from earlier in the year.

Overall, the data on Thursday and Friday was mixed. However, gold traders shrugged off the mixed reports and threw their focus on the inflation data. It came in high again for the month which could mean the Fed will have to announce an aggressive tightening strategy.

Short-Term Outlook

During the early part of this week, the focus will be on the Fed. The central bank is widely expected to announce that it will begin to unwind its $120 billion in monthly bond purchases and end the program by the middle of next year.

Investors will also be looking for the Fed’s comments on rising prices as inflation has been running at a 30-year high. The start of tapering has already been priced into the market. Traders now want to know when the Fed will make its first rate hike as well as the timing of subsequent hikes. Some are betting on July for the first rate hike and another one in December 2022.

Later in the week on Friday the focus shifts to October’s employment report, which could show some improvement in hiring, as new cases of COVID-19 continue to decline.