Price of Gold Fundamental Daily Forecast – Relax, Fed Won’t Start Tapering Until Economy Nears Full Employment

Gold futures are edging lower on Thursday while trading inside yesterday’s range, suggesting investor indecision and impending volatility. Slightly lower U.S. Treasury yields and a weaker U.S. Dollar are providing some support but buyers are being cautious following yesterday’s slightly hawkish Fed minutes.

At 11:11 GMT, August Comex gold futures are trading $1873.10, down $10.30 or -0.56%.

Fed Minutes are Influencing Gold Prices, Here’s Why

Federal Reserve officials at their April meeting said a strong pickup in economic activity would warrant discussions about tightening monetary policy, according to minutes from the session released Wednesday.

“A number of participants suggested that if the economy continued to make rapid progress toward the Committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases,” the meeting summary said.

At the April session, the policymaking Federal Open Market Committee voted to hold benchmark short-term borrowing rates near zero and keep the bond purchase intact.

Along with that decision, the Fed upgraded its view on the economy, saying growth has “strengthened” and inflation was rising.

Fed officials took a sanguine view of inflation at the meeting, anticipating that near-term price pressures would fade as the year goes on.

Those at the April 27-28 session said they expected rising demand with an economic reopening to combine with supply chain issues to push prices above the Fed’s 2% inflation target.

“After the transitory effects of these factors fade, participants generally expected measured inflation to ease,” the minutes said.

The minutes stated that “various participants” anticipated that it will “likely be some time until the economy had made substantial further progress toward the Committee’s maximum-employment and price-stability goals relative to the conditions prevailing in December 2020 when the Committee first provided its guidance for asset purchases.”

Daily Outlook

Although gold prices are retreating in reaction to the thought of tapering by the Fed, central bankers have set an ambitious and somewhat ambiguous goal for when it will change the ultra-loose policy it put into place during the pandemic’s early days.

Policymakers are looking for full and inclusive employment and say they will allow inflation to run somewhat above their 2% target in a new policy regime that looks for an average around that level, rather than using it as a maximum benchmark before tightening.

The weakness in gold may be more about value than worries about the Fed. On Wednesday, the rally stopped just short of 50% of the break from the August 2020 top to the March 2021 bottom. This is a natural resistance and selling point.

So while the minutes may be spooking some investors into selling, I don’t believe the news is a rally killer. Future jobs data will be the key as to whether the rally continues or ends. I think the market has fully-priced in the inflation data, but U.S. employment is still lagging. Until the labor market catches up, there will be little incentive for the Fed to make any major changes in policy.