Price of Gold Fundamental Daily Forecast – Lower as Investors Sense Fed Has Control of Inflation

Gold futures are under pressure on Thursday as investors awaited the release of key U.S. inflation data that could influence the Federal Reserve’s monetary policy decisions at next week’s meeting. Firm Treasury yields and a stronger U.S. Dollar are also weighing on demand for the dollar-denominated asset. Meanwhile, the European Central Bank is also on the clock, scheduled to release its monetary policy decision later today.

At 10:18 GMT, August Comex gold is trading $1883.00, down $12.50 or -0.66%.

US Consumer Inflation Report

The consumer price index (CPI) for May is set to be released at 12:30 GMT. Economists are expecting the CPI to rise 4.7% from a year earlier, according to Dow Jones. In April, the CPI increased 4.2% on an annual basis, the fastest rise since 2008.

“There is a sense in the market that the Fed got the market under control saying that the inflation is transitory, so that’s the whole focus right now, whether that can be achieved or not,” said Ole Hansen, head of commodity strategy at Saxo Bank.

ECB Expected to Maintain Stimulus

The European Central Bank (ECB) policy decision is due at 11:45 GMT. Members are expected to keep policy settings steady, but the Euro is likely to be sensitive to changes in the bank’s economic forecasts or any signal that the pace of bond buying could be reduced in months ahead.

Euro Zone government bond yields were trading near their lowest levels since April on Thursday ahead of the ECB meeting where policymakers are expected to signal they will keep the stimulus taps flowing.

While speculation has mounted this year on whether an expected global economic recovery could lead central banks worldwide to dial back on extraordinary monetary easing, ECB officials have played those prospects down recently.

As a result, Euro Zone government bond yields have dipped in the weeks leading up to today’s ECB meeting, partly reversing a sharp rise in the preceding months.

10-Year Treasury Yield Rises Slightly; Dollar Firms

The 10-year Treasury yield rose slightly early on Thursday but remained below 1.5%, with key inflation data due out later in the morning.

The rise in yields is helping to underpin the U.S. Dollar against a basket of major currencies. Investors have adopted a wait-and-see attitude all week, sucking volatility from the market and leaving major currencies mostly range-bound.

Daily Forecast

Gold investors are in a tough spot. If inflation comes in higher than expected then conventional wisdom says this is good for gold prices. However, a jump in inflation could bring the Fed closer to tapering, which would drive up yields and the U.S. Dollar, two negatives for gold.

Investors have been concerned about whether rising inflation could see the Federal Reserve taper its asset purchases or start to talk about raising interest rates. However, the Fed has emphasized that price pressures are transitory, as the economy reopens and recovers from the coronavirus pandemic.

The big question is whether gold traders will respond to the CPI report or just wait for the Fed to make its decision on June 16.