Price of Gold Fundamental Daily Forecast – More Upside Likely if Fed Can’t Agree on Rate Hike Timing

Gold futures are inching lower early Tuesday, hovering just below last week’s nearly two-month high at $1815.50. The market is trading inside Friday’s wide range, which suggests investor indecision and impending volatility.

The rangebound trade could become the theme of the week as traders prepare for upcoming key central bank meetings this week and next week’s major Federal Reserve monetary policy decisions.

At 05:51 GMT, December Comex gold futures are trading $1805.80, down $1.00 or -0.06%.

Helping to cap the gold market is a slight uptick in the U.S. Dollar. The greenback is recovering from a near one-month low hit during the previous session. A stronger greenback makes gold more expensive for buyers holding other currencies.

Benchmark 10-year U.S. Treasury yields were also a little higher at 1.6431%, raising non-interest bearing gold’s opportunity cost.

One of the focuses for gold investors this week and next are central bank meetings and policy decisions. This week, investors are eyeing meetings from the Bank of Japan (BOJ) and the European Central Bank (ECB) on Thursday. Market participants expect neither of the central banks to announce a change in policy. However, the ECB might address how inflationary pressures could affect policy.

Next week, the tone in the gold market is likely to be set by the U.S. Federal Reserve and the Bank of England monetary policy decisions.

Inflation and Timing of Fed Rate Hikes are Major Concerns

The recent strength in gold suggests traders have fully priced a Fed tapering for November. This assessment was supported on Friday when Federal Reserve Chair Jerome Powell said the U.S. central bank should start the process of reducing its support of the economy by cutting back on its asset purchases.

“I do think it’s time to taper,” Powell said.

However, he also noted that there are still five million fewer U.S. jobs than there were before the coronavirus pandemic so it’s not a good time to raise rates. Additionally, Powell reiterated his view that high inflation will likely abate next year as pressures from the pandemic fade.

In keeping with the theme of inflation, Treasury Secretary Janet Yellen said in an interview with CNN on Sunday that she expected inflation levels to fall back to the more acceptable 2% level in the middle of the second half of 2022.

Finally, last Thursday, Atlanta Federal Reserve Bank President Raphael Bostic said supply chain disruptions and labor market constraints, coupled with strong consumer demand, could keep inflation high into 2022.

Daily Forecast

It’s going to be hard to shake out the bullish gold traders if the Fed keeps kicking the proverbial “inflation can” forward. In early 2021, officials said high inflation was “transitory”. That assessment came and went. It’s now been kicked into mid-2022.

Furthermore, Fed policymakers also don’t seem to be on the same page when it comes to the timing of their first rate hike. Financial futures traders seem to think it’ll occur in July 2022. The FOMC sees late 2022 and Fed Chair Powell didn’t offer any clues other than a better job market.