Price of Gold Fundamental Daily Forecast – Prices Could Collapse if the Fed Discussed Tapering

A rise in Treasury yields and rebound in the U.S. Dollar are helping to pressure gold futures on Wednesday. Nonetheless, the dollar-denominated asset remains within striking distance of a four-month high reached on Tuesday. Position-squaring ahead of the release of the Fed minutes and profit-taking after a spike to the upside earlier in the week may be helping to cap gains.

At 11:12 GMT, June Comex gold futures are trading $1856.30, down $11.70 or -0.62%.

On Tuesday, prices rose early in the session, but gave back all of their gains into the close before finishing slightly better.

On Wednesday, the U.S. Dollar steadied against a basket of major currencies but remained near a six-year low against its Canadian counterpart and nursed losses against European currencies as expectations that U.S. interest rates will remain low undermined the greenback.

The minutes from the U.S. Federal Reserve’s most recent meeting due later on Wednesday at 18:00 GMT are expected to confirm that policymakers think a rate hike is still in the distance.

Data last week showing U.S. consumer prices rose 4.2% in April from a year earlier was the fastest increase in more than a decade, which stunned investors.

Fed policymakers have said this is a temporary spike and reiterated that they expect interest rates to remain low, which has taken some steam out of the dollar, but not all are convinced by the Fed’s persuasion.

The U.S. central bank has also pledged to keep interest rates low until the economy reaches full employment and Fed officials have repeatedly maintained they expect any rise in inflation to be short-lived.

Daily Forecast

Ahead of the Fed minutes, gold is under pressure as the 10-year U.S. Treasury yield topped 1.66%. The yield on the benchmark 10-year Treasury note climbed to 1.666% at 08:00 GMT. The yield on the 30-year Treasury bond rose to 2.385%.

Gold is likely to continue to remain under pressure as long as yields hold the 1.60% level.

We don’t expect any surprises from the Fed based on the last policy statement in April and the subsequent dovish comments from several Fed officials. So don’t expect the minutes to show the Fed has considered tapering its bond purchases and most of all raising rates.

It’s possible that the widely expected dovish minutes may have been already priced into the gold market. If so then the risk is to the downside for gold if the Fed delivers what is expected or if the minutes hint at tapering.