Price of Gold Fundamental Daily Forecast – Robust CPI Report Could Shift Focus Away from Trade Concerns

We could see a repeat of Wednesday’s trade if today’s U.S. consumer inflation report comes in strong enough to support the Fed’s plans to raise interest rates in September and December.  A steady to stronger-than-expected report should drive Treasury yields higher, which should make the U.S. Dollar a more attractive investment. This should be enough to pressure demand for dollar-denominated gold futures.
James Hyerczyk
Comex Gold
Comex Gold

Gold is trading nearly flat shortly before the regular session opening in New York. Earlier in the session, the market attempted to follow-through to the downside, following Wednesday’s steep sell-off, but buyers came in to defend last week’s low at $1238.80 and stop the price slide.

At 1016 GMT, August Comex Gold is trading $1244.30, down $0.01 or -0.01%.

Helping to keep a lid on prices are the usual suspects:  increased demand for higher risk assets, rising Treasury yields, and a stronger U.S. Dollar. Gold has a tendency to weaken when investor appetite for risk is strong because it doesn’t pay a dividend to hold. Additionally, rising yields also put pressure on gold because it doesn’t pay any interest. Furthermore, rising yields make the dollar a more attractive investment. This tends to dampen foreign demand for dollar-denominated gold.

Gold did catch a bid earlier in the session. Some news websites are saying support was being driven by safe-haven buying related to the escalating tensions over the trade dispute between the United States and China. I not sure why investors were buying because the other fundamental factors are working against it, but I suspect it was bargain hunters buying in front of last week’s low at $1238.80 and some position-squaring ahead of today’s U.S. Consumer Inflation report.


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Forecast

In my opinion, the direction of interest rates and the U.S. Dollar is having a greater effect on the direction of gold than trade war concerns. This was proven on Wednesday when gold plunged in reaction to the stronger-than-expected U.S. Producer Inflation report, which drove up the chances of at least two more Fed rate hikes later this year.

U.S. producer prices increased slightly more than expected in June amid gains in the cost of services and motor vehicles, leading to the biggest annual increase in 6-1/2 years.

We could see a repeat of Wednesday’s trade if today’s U.S. consumer inflation report comes in strong enough to support the Fed’s plans to raise interest rates in September and December.  A steady to stronger-than-expected report should drive Treasury yields higher, which should make the U.S. Dollar a more attractive investment. This should be enough to pressure demand for dollar-denominated gold futures.

On Thursday, the U.S. consumer inflation report could temporarily take the market focus away from trade worries, particularly if it surprises to the upside like yesterday’s producer prices report.

Traders are looking for both the headline Consumer Inflation Index and the Core Consumer Inflation Index to post a 0.2 percent increase.

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