Price of Gold Fundamental Daily Forecast – Prices Consolidate as Fed Speakers Dampen Inflation Fears

Gold futures are trading steady-to-slightly lower on Tuesday while hovering just under a four-month high reached early last week. Gains are being capped despite another spike to the downside by the U.S. Dollar and lower Treasury yields. Traders said advances were likely being capped by soothing comments from U.S. Federal Reserve officials who continued to play down concerns over rising inflation.

At 10:48 GMT, August Comex gold futures are trading $1886.10, down $0.60 or -0.03%.

Technically, the market is facing a potential wall of resistance at $1899.20 to $1951.30. This zone represents a 50% to 61.8% retracement of the August 2020 to March 2021 trading range.

Chicago Fed National Activity Index Fails to Impress

In terms of economic data, Monday didn’t offer much, but the latest Chicago Fed National Activity Index (CFNA) showed that three of the four broad categories of indicators used to construct the index made positive contributions in April, but growth slowed from March.

The CFNA Index decreased to 0.24 in April from 1.71 in March. The reading is below economists’ consensus, who polled by FactSet expected the indicator to come in at 1.2.

Gold Underpinned as US Yields Drop after Fed Officials Vow Support to Hold Policy Steady

U.S. Treasury long-dated yields are pressing two-week lows after a few Federal Reserve officials affirmed their support to keep monetary policy accommodative for some time, dampening recent expectations the Fed would reduce bond purchases or flag rate hikes sooner than what it has indicated to the market.

Fed Board Governor Lael Brainard, St. Louis Fed President James Bullard, and Atlanta Fed President Raphael Bostic in separate remarks all backed the U.S. central bank’s current easy monetary policy view.

Brainard, for one, said she sees inflation pressures fading, and expects that spikes in prices associated with supply bottlenecks and the reopening of the economy to “subside over time,” in line with what Fed Chairman Jerome Powell has said repeatedly over recent weeks.

Bullard said Monday that the central bank is not yet ready to pull back on its aggressive monetary stimulus, but could be ready soon.

“We’re not quite there yet, I think we will get there in the months ahead,” Bullard told Yahoo Finance in an exclusive interview.

With the economy still re-opening and over 8 million people still out of jobs relative to pre-pandemic levels, Bullard said the Fed should not yet pare back on its so-called quantitative easing program.

Bullard also said vaccinations are bringing the economy “closer and closer” to pre-pandemic, form, but said policymakers should not be too eager to pull back support yet.

“I think there will come a time when we can talk more about changing the parameters of monetary policy, I don’t think we should do it when we’re still in the pandemic,” Bullard said.

Daily Outlook

The pause in the gold rally despite the weaker U.S. Dollar and stable interest rates suggests that traders may be starting to accept the Fed’s thinking that the inflation we’re seeing is just temporary and by the end of August, it could start to head lower. Furthermore, the Fed is not only looking to stabilize inflation at or slightly above its 2% mandate, policymakers are also trying to achieve a 5% unemployment rate.

So until we see inflation hold 2% and unemployment hold 5%, the Fed is not expected to make a move.