Price of Gold Fundamental Daily Forecast – Pay Attention to FOMC Dudley’s Speech Today

Gold prices are trading slightly higher on Wednesday after posting a volatile two-sided trade the previous session. The price action this week suggests the negative correlation between gold and higher-yielding assets has returned.

At 0816 GMT, April Comex Gold futures are trading $1332.40, up $2.90 or +0.22%.

In addition to the negative correlation with stocks, gold traders are also reacting to the direction of the U.S. Dollar and U.S. Treasury yields.

The April futures contract changed trend on Tuesday when sellers took out the previous bottom at $1329.10. The move triggered sell stops down to $1322.80.

If the selling persists then gold prices could continue to weaken into $1306.60 to $1291.50. This area may be attractive to value-seeking bottom pickers.

The short-term range is $1370.50 to $1322.80. Its 50% to 61.8% retracement zone comes in at $1346.70 to $1352.30. Since the main trend is down, sellers may show up on a test of this zone.

Forecast

The direction of the gold market is likely to be influenced today by Federal Open Market Committee Member William Dudley. Traders will especially react to anything he says about the number of future rate hikes, stock market volatility, inflation and the strength of the economy.

On January 11, New York Fed President William Dudley said passed tax cuts are putting the U.S. on an “unsustainable” fiscal path that will threaten growth in the future. His comments also echoed recent remarks from former Fed Chair Janet Yellen, who said in November that escalating public debt and deficits “should keep people awake at night.”

Dudley also voiced his willingness to accept above-target inflation even as price pressures are beginning to build.

“Let me be clear:  A small and transitory overshoot of 2 percent inflation would not be a problem,” William Dudley, president of the Federal Reserve Bank of New York said. “Were it to occur, it would demonstrate that our inflation target is symmetric, and it would help keep inflation expectations well-anchored around our longer-run objective.”

His comments suggested that the central bank won’t respond willy-nilly to mounting price pressures with significantly stepped-up interest rate increases.

Dudley also said he thinks that three interest rate increases this year is not “an unreasonable sort of starting point” for thinking about Fed action in 2018. He also worries about the risk of the economy overheating over the next few years and the Fed eventually having “to press harder on the brakes” to slow it down.

Unless the stock market plunge intensifies and damages the economy, U.S. Federal Reserve policymakers are unlikely to budge from their plan to lift key short-term interest rates three times this year, some analysts said.

However, traders dialed back bets the U.S. central bank would ratchet up the pace on rate increases on Monday to between two and three hikes from three to four hikes last week, according to interest rate futures.

Look for increased volatility when Dudley speaks at 1330 GMT on Wednesday. His comments are likely to determine the tone and the trend of the gold market today.