Price of Gold Fundamental Daily Forecast – Prices Plunge as Chances of December Fed Rate Hike Jumps to 73 Percent

Gold futures are stabilizing early Thursday after yesterday’s steep sell-off. Wednesday’s price action was fueled by a hawkish Fed monetary policy statement which drove the market to a three week low. Federal Reserve comments drove up U.S. Treasury yields, making the U.S. Dollar a more attractive investment while curbing demand for the precious metal.

On Wednesday, December Comex gold futures settled at $1304.50, down $6.10 or -0.47%. At 0722 GMT on Thursday, gold was trading $1303.20.

The Federal Open Market Committee voted to leave interest rates unchanged as widely expected. It also announced it would begin reducing its $4.5 billion balance sheet starting in October. All nine member of the committee voted for this action.

The FOMC also indicated that a possible third rate hike before the end of the year is still on the table. This would bring the target up to between 1.25 percent and 1.50 percent.

The central bank also downplayed the impact of Hurricanes Harvey and Irma on the economy, saying that they “are unlikely to materially alter the course of the national economy over the medium term,” other than temporarily lifting inflation because of higher prices for gas and other goods for which the supply chain was disrupted.

Fed members also said that they now project faster growth for 2017, with a median forecast of 2.4 percent gross domestic product growth, versus a June projection of 2.2 percent.

Forecast

The Fed’s announcement on another interest rate hike this year took the markets by surprise as a series of poor inflation readings had dampened expectations for such a step. The news triggered a surge in U.S. Treasury yields, leading to a drop in demand for dollar-denominated gold.

The U.S. 2-year Treasury yield hit a high of 1.430 percent, its highest level since July 6. The U.S. 10-year Treasury yield climbed to 2.264 percent, its highest level since August 1. The 30-year Treasury yield edged up to 2.82 percent.

Barring any geopolitical events that could send investors into the safety of the gold market, rising Treasury yields are expected to continue to limit gold’s upside potential while sending prices lower. Increased demand for higher-yielding assets like stocks should also keep the downside pressure on gold.

At the end of the session, the futures market implied traders saw a 73 percent chance of the Fed raising rates at its December 12-13 meeting, up from 52 percent before the Fed’s latest policy statement and forecast, the CME Group’s FedWatch tool showed.

Despite the bearish outlook for gold prices, traders should keep in mind that there are still many economic reports to digest before the December meeting. Any signs of continual weakness in the economy could lower the odds of a Fed rate hike.

Each report as well as Fed member commentary from now until the December meeting is going to take on added importance.