Price of Gold Fundamental Daily Forecast – May See Further Consolidation Ahead of New Week’s Fed Meeting

Gold futures are edging lower on Thursday with the market trading inside the previous day’s range for a second session, suggesting investor indecision and impending volatility. Since hitting a five-month high on Monday, the market has drifted sideways to lower primarily due to increased demand for higher risk assets and rising Treasury yields. A stronger dollar is also helping to keep a lid on gold prices.

At 0943 GMT, February Comex Gold is trading $1249.50, down $0.50 or -0.04%.

The price action this week is also reflecting an easing of tensions over U.S.-China trade relations. Yesterday it was announced that China made its first major U.S. soybean purchases in more than six months. Earlier in the week, the world’s second largest economy announced it was lowering the tariffs on U.S.-made automobiles.

Muted Reaction to U.S. Consumer Inflation Data

On Wednesday, gold prices rose slightly after a government report showed no change to consumer prices across the month of November. The news likely means the Fed will address the issue of weakening inflation at its meeting next week.

According to the U.S. Labor Department, consumer inflation was unchanged last month on a seasonally adjusted basis after rising 0.3 percent in October. Over the last 12 months, the headline index increased 2.2 percent before seasonal adjustment; that was down from the October year-over-year print of 2.5 percent.

Core CPI, which does not include volatile energy or food prices, increased 0.2 percent in November and is up 2.2 percent in the past 12 months.

Inflation Fears Recede

Another sign that inflation was weakening, which could be supportive for gold prices is the drop in the difference between the 5-year Treasury inflation-protected securities, or TIPS, and the corresponding Treasurys. That spread hit new multi-month lows on Wednesday.

Traders see this spread as a practical look at the market’s projection of where inflation is heading. It is currently down from highs over 2 percent in October.

Forecast

The tight price action suggests gold investors may be unwilling to take on new risk ahead of next week’s U.S. Federal Reserve meeting. The Fed is expected to raise interest rates at the December 18-19 meeting, but expectations for further hikes next year have tempered off late amid fears of slowing economic growth.

Monday’s spike in prices to the upside and subsequent technical reversal top may be an indication that the Fed news has been priced into the market.

Today’s price action is likely to be determined by the direction of the U.S. Dollar and investor appetite for risk. The best combination for a rally will be a weaker dollar and heightened volatility in the stock market. Otherwise, we’re likely to see further consolidation.