Price of Gold Fundamental Daily Forecast – Pressured by Stronger Dollar

Gold futures are trading lower after failing to follow-through to the upside following Friday’s late session surge. Today’s early price action suggests the stronger U.S. Dollar is putting pressure on bullion. The selling pressure is a little subdued, however, because of a slight downtick in U.S. Treasury yields.

At 06:29 GMT, December Comex gold futures are trading $1807.40, down $8.10 or -0.45%. On Friday, the SPDR Gold Shares ETF (GLD) settled at $167.86, up $1.52 or +0.91%.

Confusing Rate Hike Expectations Leading to Rangebound Trade

Although gold is often considered to be a hedge against inflation, rising U.S. interest rates dull non-yielding bullion’s appeal.

Last week’s U.S. CPI and PPI reports showed inflation softened in July, but it still remains at elevated levels. The odds of a 75-basis-point rate hike also plunged from 70% to 45% and the chances of a 50-basis-point rate hike rose. The Fed is still going to raise rates and it may continue to do it aggressively even if the market believes the September 21 rate hike won’t be a super-sizing event.

These events may be enough to consolidate gold prices over the near-term at or near the short-term retracement zone at $1798.50 to $1822.60. However, this zone can even be looked upon as a trigger point for an acceleration to the upside, or the downside. The longer gold stays inside this range, the greater the chances of a volatile breakout in either direction.

Fed Officials Capping Gains

Helping to put a lid on gold prices are hawkish comments from several Fed officials. Their comments seem to have stopped the rally in Treasury bonds and the sell-off in the U.S. Dollar after the posting of weak consumer and producer inflation data last week.

Minneapolis Federal Reserve Bank President Neel Kashkari said, the Fed is “far, far away from declaring victory” on inflation. He also said he hasn’t “seen anything that changes” the need to raise the Fed’s policy rate to 3.9% by year-end and to 4.4% by the end of 2023.

Chicago Fed President Charles Evans signaled he believes the Fed has plenty more work to do. He further added that inflation is still “unacceptably” high, and the Fed will likely need to lift its policy rate.

San Francisco Federal Reserve Bank President Mary Daly warned it is far too early for the U.S. central bank to “declare victory” in its fight against inflation, the Financial Times reported.

Finally, Richmond Fed Bank President Thomas Barkin said on Friday he wanted to raise interest rates further to bring inflation under control.

Daily Forecast

Technically speaking, trader reaction to the retracement zone at $1798.50 to $1822.60 is likely to determine the near-term direction of the December Comex gold futures contract on Monday.

Fundamentally, most traders are going to be tracking the direction of the U.S. Treasury yields, the U.S. Dollar and the FedWatch Tool that shows the probability of the next rate hike. The biggest influence on these will be Wednesday’s US retail sales report and the Fed minutes.

On Monday, the U.S. will release a pair of reports on the Empire State Manufacturing and housing. They are graded as having a medium impact on interest rates, the dollar and gold. However, since the market is sensitive to manufacturing at this time, the Empire State report could be a market moving event.