Price of Gold Fundamental Daily Forecast – Position-Squaring Ahead of NFP Report Weighing on Prices

Gold futures are trading lower late in the session on Monday as the U.S. Dollar moved higher despite a dip in U.S. Treasury yields. The price action could be reflecting general uncertainty ahead of Friday’s key Non-Farm Payrolls report with many major players already starting to move to the sidelines.

At 19:05 GMT, December Comex gold futures are trading $1813.00, down $6.50 or -0.36%.

The price action also suggests that Friday’s spike to the upside may have been an overreaction to comments made by Federal Reserve Chairman Jerome Powell at the central bankers’ conference at Jackson Hole, Wyoming.

Powell said tapering of the U.S. central bank’s bond-buying program could happen this year but gave no indication as to the exact timeline for the Fed to start cutting its asset purchases. Gold prices may have risen sharply because short-sellers were encouraged to adjust positions. Or, new buyers may have been encouraged to enter the market because Powell’s comments lacked clarity over the Fed’s next move and contributed to the general uncertainty underpinning gold prices recently.

Powell indicated the Fed will remain cautious in any eventual decision to raise interest rates as it tries to nurse the economy to full employment, saying he wants to avoid chasing “transitory” inflation and potentially discouraging job growth in the process – a defense in effect of the new approach to Fed policy he introduced a year ago.

Short-Term Outlook

Is it safe to say that if Powell believes the jump in inflation is “transitory”, then this Friday’s Non-Farm Payrolls report will be the major event to watch until the Fed meets on September 21-22?

Powell said on Friday the weeks since the Fed’s policy meeting in July “brought more progress” towards repairing the jobs market, with nearly a million positions added and continued progress expected. But he didn’t say how much more improvement he would like to see before announcing the Fed’s tapering plan.

Even before Powell made his remarks, several hawkish Fed presidents said they were eager to get a taper underway, and to reduce the asset purchases fast, with some arguing the shift was needed to prepare for interest rate increases that may be needed sooner than expected.

Nonetheless, Powell was non-committal, and gave no precise indication of when a reduction in bond purchases might start. Powell even hedged his comments by expressing some worries about “the further spread of the Delta variant” of the coronavirus.

Based on Powell’s comments, Friday’s NFP report could set the tone in the gold market for the next three weeks.