Price of Gold Fundamental Daily Forecast – Powell Likely to Reiterate Fed Policy, Upbeat Assessment of Economy

After reaching its lowest level in a year last week, gold is showing signs of life early Tuesday, consolidating inside Friday’s wide range while moving higher. The move suggests that perhaps Friday’s spike to $1236.20, slightly above the July 7, 2017 bottom at $1230.70, may have been exhaustion, and the market may be gearing up for a short-covering rally.

At 1000 GMT, August Comex gold is trading $1243.30, up $3.50 or +0.28%.

Talk of a rebound in gold will be pre-mature, however, if the dollar turns around and rallies, since its direction has been the main factor driving prices lower recently. Early Tuesday, the U.S. Dollar is paring recent gains against a basket of major currencies as investors await Federal Reserve Chairman Jerome Powell’s first congressional testimony for any clues on the pace of U.S. interest rate hikes.

In other news, the International Monetary Fund warned on Monday that escalating and sustained trade conflicts following U.S. tariff actions threaten to derail economic recovery and depress medium-term growth prospects.

Forecast

Even before Powell takes the stage before the U.S. Congress, gold and dollar investors will get the opportunity to react to fresh economic news on Capacity Utilization and Industrial Production at 1315 GMT. The capacity utilization rate is expected to come in at 78.4 percent, slightly better than the previously reported 77.9 percent. Industrial production could rise 0.5% versus a 0.1% rise last month.

Powell’s testimony could start slow as he is widely expected to reiterate the Fed’s gradual monetary policy tightening and upbeat assessment of the economy.

However, gold investors will be more interested in what he has to say about global trade tensions and how this would affect the rate outlook going forward.

The technical picture on the U.S. Dollar Index chart suggests the Green back may be vulnerable to further downside action especially if the Euro starts to rally. A weaker dollar may be enough to fuel a short-covering rally in gold that could take prices back to $1251.60 to $1255.30 over the near-term. However, don’t expect any meaningful rally until the precious metal clears $1266.90.

In order to trigger a sustainable rally in gold, Powell is going to have to acknowledge cracks in the economy, or vulnerability in the Fed’s plan to raise rates at least two more times this year. Unless he softens his stance on additional rate hikes, any rally in gold is likely to be short-lived.

At best we’re looking at a sideways trade over the short-run and lower prices over the long-run.