Price of Gold Fundamental Daily Forecast – Showing Early Mixed Reaction to PCE Data on Light-Holiday Volume

Gold futures are edging lower shortly after the New York opening on Friday as investors await a slew of U.S. economic reports, especially crucial U.S. inflation data, at 12:30 GMT. Weighing on prices early in the session are a firm U.S. Dollar and U.S. Treasury yields.

At 12:23 GMT, August Comex gold futures are trading $1893.50, down $5.00 or -0.26%. This is also down from its high of the week at $1915.60.

Follow-through selling after yesterday’s solid U.S. economic reports on the labor market and economic growth are also helping to cap gains.

Data on Thursday showed the number of Americans filing new claims for unemployment benefits dropped more than expected las week as layoffs subsided. A separate report from the Commerce Department confirmed economic growth accelerated at a 6.4% annualized rate last quarter.

Meanwhile, another Fed official hinted that the central bank may have to start discussing a plan to begin tapering its bond purchasing program. Federal Reserve Bank of Dallas President Robert Kaplan said the labor market was tighter than levels of employment suggest.

Throughout the week, several Fed officials downplayed rising price pressures and affirmed their support to keep monetary policy accommodative for some time. However, it the jobs market is strengthening and inflation holds above the Fed’s mandated level of 2% then it may be time for Fed officials to bring up the notion of tapering stimulus.

Tapering bond purchases would be the first step toward tightening policy although the numbers suggest the Fed is still far away from raising rates. Nonetheless, this could be bearish for gold prices. Not to the extent that the trend changes to down, but may be enough to slow down the buying and cap gains.

Daily Outlook

In breaking news, the core Personal Consumption Expenditures (PCE) price index for April rose 3.1% year over year, higher than expected. Traders were looking for it to increase 2.9% year over year and 0.6% over the past month.

Gold prices initially dipped to a new low for the session on the news before stabilizing. This could mean traders are pricing in the possibility of the tapering discussion.

Although the 3.1% number is higher than the expected 2.9%, it didn’t really blow away the estimate so traders may not be interpreting the report as bullish.

Furthermore, Treasury yields firmed and the U.S. Dollar rose against a basket of major currencies, helping to keep a lid on gold prices.

Traders should keep in mind that the U.S. is headed toward an extended holiday weekend so we may not see the true reaction to the report until next Tuesday or Wednesday.