Price of Gold Fundamental Daily Forecast – Price Action Suggests Traders Aren’t Sure What the Fed Will Do

Gold futures finished higher on Friday with buyers catching the bears napping after a survey showing U.S. consumer sentiment dived in early August calmed investor concerns over an early tapering of the Federal Reserve’s asset purchases. The rally recaptured all of this week’s previous losses and some of the previous Friday’s losses that were fueled by a bearish U.S. Non-Farm Payrolls report.

On Friday, December Comex gold futures settled at $1778.20, up $26.40 or 1.51%.

Huge Drop in Consumer Sentiment Fuels Short-Covering Rally

A key consumer sentiment reading saw a dramatic drop in early August as the delta variant of COVID-19 increased fears about the path of the economy, the University of Michigan said Friday, CNBC reported.

The consumer sentiment index tumbled to 70.2 in its preliminary August reading. That is down more than 13% from July’s result of 81.2 and below the April 2020 mark 71.8 that was lowest of the pandemic era.

It was the lowest reading for the measure since 2011. Economists surveyed by Dow Jones were expecting a reading of 81.3 for August.

Price Action Suggests Traders Remain Neutral Toward Fed

The U of M consumer sentiment report and the subsequent reaction by U.S. Treasury yields, the U.S. Dollar and gold suggests consumers are reasoning that the U.S. economy’s performance will be diminished over the next several months.

If Federal Reserve officials feel the same way then they may lean toward the dovish side in their next meeting on September 21-22. This should be enough to keep gold prices underpinned.

Wiping out the gains attributed to the bullish July Non-Farm Payrolls report suggests investors have already moved on from this data, and may be looking forward to weaker labor market data in August due to the reinstatement of mask mandates and other health restrictions in several states.

Short-Term Outlook

With gold recapturing the August 6 close, traders are back to square one when it comes to determining what the Fed will do about an early tapering.

The real issue is, “what will the bearish analysts do?” On August 6 and again on August 8, many analysts turned bearish when the Non-Farm Payrolls report came in bearish on Friday and prices plunged the following Monday. Now that gold has recovered all of those losses, are analysts going to turn bullish?

I don’t think gold is going to be bullish or bearish over the next month. Sure, we’ll see pockets of strength and weakness in reaction to Fed speaker talk and economic data. But I’m not so sure the Fed has enough information to announce the start of tapering at Jackson Hole later this month, which likely means it’s going to wait until the September 21-22 monetary policy meeting. By then, gold traders and Fed policymakers will have seen another NFP report and inflation data.