Price of Gold Fundamental Daily Forecast – Looks Bullish Until Fed Commits to Rate Hike Timetable
Gold futures are trading nearly flat early Thursday after striking a one-month high the previous session. Prices are likely being capped by increased bets the Federal Reserve would tighten its policy earlier than anticipated.
Gold rose sharply higher on Wednesday after a report showed U.S. consumer prices rose more than expected, but the rally stalled following the release of the minutes of the Fed’s monetary policy meeting.
At 07:56 GMT, December Comex gold is trading $1794.20, down $0.50 or -0.03%.
To recap Wednesday’s volatile trade, gold dropped from $1778.50 to $1757.90 shortly after the release of the U.S. consumer inflation report. Buyers then drove the market to $1797.40 at about 15:15 GMT. Prices then retreated to $1791.70 after the release of the Fed minutes before drifting into the close.
The bullish reaction to the jump in consumer inflation is understandable because that’s what gold traders are trained to do. The next major move will be determined by how traders react to the start of Fed tapering which is expected to begin in mid-November and the timing of the Fed’s first interest rate hike in years.
The Fed minutes suggested policymakers were mixed on how aggressive they should be in raising interest rates. But that was their opinion on September 21-22. Conditions have changed since then with inflation continuing to climb.
The way I see it, gold bulls have until the next Fed meeting on November 2-3 to play the long side of the market because after that there are going to have to deal with the possibility of a sooner-than-expected rate hike. On top of that, the Fed may reveal a much more aggressive strategy when it comes to hiking rates.
Fed Reacts to Rising Inflation
According to the Fed minutes, in a change from readouts of Fed meetings over the summer, policymakers were no longer described as “generally” expecting inflation pressures to ease as transitory factors “dissipated.”
Instead, the minutes suggested there were intensifying worries within the Fed over inflation, with “most” policymakers now seeing upside risks, and “some” concerned about elevated inflation feeding through to inflation expectations or more broadly into prices.
Congratulations to the gold bulls for picking up on that.
But the attention now shifts to the timing of future interest rate hikes and they tend to be bearish for gold prices.
In forecasts released alongside last month’s policy statement, half of Fed policymakers thought a rate hike would be needed before the end of next year, with all but one forecasting a first increase in borrowing costs before the end of 2023.
Meanwhile, U.S. money market futures are saying there is a 50/50 chance of a Fed rate hike by July 2022.
So the way I see it, gold bulls could enjoy the current rally until November 2-3 because at that time, we could find out how aggressive the Fed will be with its interest rate hikes.