Price of Gold Fundamental Daily Forecast – Rangebound Trade Suggests Traders Want Short-Term Stimulus

Gold futures are trading higher but giving back most of its earlier gains at the mid-session on Tuesday. Early in the session, prices edged up as a weaker dollar made dollar-denominated gold a more attractive investment. However, prices began to fall on profit-taking after better-than-expected U.S. manufacturing data, pulled the precious metal down from a two-week high.

At 15:14 GMT, December Comex gold is trading $1983.10, up $9.20 or +0.47%.

The dollar was hovering close to a more than two-year low, making gold cheaper for holders of foreign currencies. The greenback has been under pressure since the U.S. Federal Reserve last week announced an average inflation target policy, which will allow rates to stay low even if inflation rises a bit in the future.

Gold is often seen as a hedge against inflation and currency debasement, while lower interest rates reduce the opportunity cost of holding non-yielding bullion.

Gold was sitting at a two-week high when a better-than-expected ISM number took some shine off the rally Tuesday morning. The news is not expected to change Fed policy that has cemented lower rates for years, but it was strong enough to encourage gold investors to trim their long positions.

U.S. manufacturing activity accelerated to a more than 1-1/2 high in August, the Institute for Supply Management (ISM) data showed.

Prices began to retreat after Treasury yields rose slightly as traders digested strong U.S. manufacturing data. According to a report, U.S. manufacturing activity continued to rebound in August from the pandemic lows.

The Institute for Supply Management (ISM) said Tuesday its manufacturing PMI jumped for a third straight month to a reading of 56.0 last month, the highest level since January 2019. The gauge was at 54.2 in July.

Short-Term Outlook

Since the Fed announced its policy change last Thursday, gold is trading higher, but we haven’t seen the runaway rally that many bullish traders had anticipated. The lack of clarity from the Fed may be one reason behind the price action, the lower U.S. Dollar and steady to higher U.S. Treasury yields may be the other reasons.

In my opinion, the market is trading in a tight range because the Fed move is seen as a long-term decision. Its plan to average inflation takes place over the long-run. There really aren’t any short-term expectations because inflation is expected to remain stubbornly low. Furthermore, Fed officials don’t seem to really know how it’s going to work. Recent comments suggest they aren’t predicting anything until they can see how it plays out.

Yesterday, FOMC member Richard Clarida said it would be business as usual at the next Fed meeting in September, while moving on from last week’s announcement. Furthermore, Goldman Sachs added the Fed is not likely to raise rates until 2025. That’s enough to underpin gold prices, but may not be enough to trigger another short-term rally. Gold traders are more likely to react in a bullish manner if the government approves another stimulus package.

For a look at all of today’s economic events, check out our economic calendar.