Price of Gold Fundamental Daily Forecast – ‘Risk-Off’ Session Could Pressure Prices if Dollar Rebounds

Gold futures are edging higher on Thursday with traders focusing on Treasury yields and the U.S. Dollar as both suggest a shift in investor sentiment. Further supporting the notion of a “risk-off” day is an early dip in U.S. stock indexes in the pre-market session and a rise in the Japanese Yen.

At 10:48 GMT, December Comex gold futures are trading $1786.30, up $1.40 or +0.08%.

If today is a “risk-off” day then gold traders could be in for a confusing session because Treasury yields could drop and the dollar could rise on safe-haven buying. A drop in yields would lower the opportunity cost of holding gold, proving it some support. However, a rise in the greenback due to safe-haven buying would likely cap gains in the dollar-denominated asset.

Safe-haven demand for the Japanese Yen could also draw the money that could come out of the stock market as investors pay back loans to Japanese banks for the carry trade. This could mean that little, if any, cash flows back into gold. Remember, gold is an investment, not a safe-haven.

Why do we think we can see a shift in risk sentiment on Thursday? Because of the technical closing price reversal tops in the NASDAQ Composite and Dollar/Yen, and the technical closing price bottom in 10-year Treasury notes.

What we’re not seeing is evidence of major buying of gold for protection. We’re seeing a market that is likely being capped by Thursday’s rebound in the U.S. Dollar. That’s likely to be the focus for gold traders today.

Fed Officials Attempt to Bring Some Clarity on Policy

Earlier in the week, gold was supported by the notion that the lack of clarity and conviction from the Federal Reserve on tapering and interest rates was likely to mean that high inflation would last longer than previous expected.

That idea may have been put to bed on Wednesday when two U.S. Federal Reserve officials said while the central bank would begin winding down its stimulus measures, it was too soon for interest rate hikes.

Federal Reserve Governor Randal Quarles said that while it’s time for the Fed to begin dialing down its bond-buying program, it would be “premature” to start raising interest rates in the face of high inflation that is likely to recede next year.

He also said that “I do not see the (Fed) as behind the curve” on fighting inflation. To the contrary, he said, “constraining demand now, to bring it into line with a transiently interrupted supply, would be premature.”

Quarles comments should’ve been bullish for gold but traders must’ve remembers last week’s comments from Fed official James Bullard who said the Fed should be more aggressive.

Daily Forecast

Today could be a big day for gold traders because today they will be forced to show their hand. They are either going to commit to the bullish narrative that inflation fears are providing support, or they are going to react to a turnaround in the U.S. Dollar that could put pressure on prices. Time is beginning to run out for the bulls as we move closer to the November 2-3 Fed meeting.