Price of Gold Fundamental Daily Forecast – Rallies after Drop in Sentiment Dampens Rate Hike Possibilities

Gold futures posted a two-sided trade before inching to a new high for the week on Friday. The volume was light and the price action late in the session suggested investors were gunning for stops over $1870.60. Most of the intraday support was provided by lower Treasury yields and a weaker U.S. Dollar.

At 20:04 GMT, December Comex gold is trading $1866.40, up $2.50 or +0.13%.

Friday’s price action only highlights the importance of U.S. economic data going forward. Gold traders have seen Federal Reserve expectations for inflation and the U.S. labor market, but they are also watching reports on economic growth and consumer confidence.

Today, consumer confidence was the focus. Why? Because if consumers aren’t confident in the economy then they won’t spend. If they don’t spend then inflation would come down and gold prices could weaken. However, slower consumer spending would also mean the Fed wouldn’t have to raise interest rates, which would underpin gold. So essentially, we would have offsetting news created a rangebound trade.

Rising Inflation Dampens Consumer Sentiment

Rising prices dramatically affected American spending power causing consumer sentiment to drop to a 10-year low in November, a sign inflation is quickly becoming a political liability for President Joe Biden.

While the U.S. has bounced back strongly from the COVID-19 pandemic impact, global shortages of key components and supply chain snarls have added to a U.S. worker shortage, raising costs and pushing prices higher.

Following a government report on Wednesday showing a jump in consumer inflation to a 30-year high of 6.2 percent in October, a survey released Friday revealed a sharp drop in sentiment. This is a new concern because it may be an early indication that consumers may cut back on spending.

The University of Michigan said its preliminary sentiment index dropped to 66.8 this month, a 6.8 percent decline.

Short-Term Outlook

December Comex gold futures rallied after the release of the University of Michigan Consumer Sentiment report because the data may be interpreted to mean consumer spending is headed for a fall. Any signs of weakness will give the Fed an excuse to continue to delay plans to raise interest rates.

However, how low consumer sentiment affects consumer spending has yet to be determined. Meanwhile economists are saying they do not expect shoppers to pull back on spending.