Price of Gold Fundamental Daily Forecast – Speculators Betting on Weaker U.S. Economy

Gold is trading lower on Friday, but remains near a six-month high reached during yesterday’s session. Today’s inside price action indicates investor decision which could be just profit-taking and position-squaring ahead of the long Christmas holiday week-end. Volume is also below average which suggests some of the bigger market players may have already taken to the sidelines.

At 1051 GMT, February Comex gold is trading $1261.00, down $6.90 or -0.55%.

Firm Treasury yields and a stronger U.S. Dollar are also helping to put a lid on gold prices.

Fed Recap

Gold traders continue to be influenced by the Fed’s monetary policy decisions from Wednesday. Bullish gold investors think prices are likely to rise due to a subdued outlook towards U.S. interest rates, the U.S. economy and lower demand for risky assets. They cite the Fed’s expectations of fewer rate hikes in 2019 as one of the primary factors supporting gold prices.

Furthermore, some say the Fed’s inability to reassure investors that they understand the risks across global markets is fuelling appetite for safe-haven gold in the short- to medium-term.

Some traders are also saying that the move in gold may be overdone since the Fed sounded a little more hawkish than the price action suggests. They can’t seem to justify the weakness in the U.S. Dollar since the Federal Reserve raised its benchmark rate and delivered an outlook that was less dovish than traders had anticipated.

Forecast

Despite some doubts as to what the Fed is actually planning to do with rate hikes in 2019, gold seems to be one of the most desirable safe-haven assets at this time because investors seem to be betting on a weaker U.S. economy next year.

A weaker economy will likely force the Fed to take a pause in its rate hikes, which would drive Treasury yields lower. A drop in Treasurys will weigh on demand for the dollar. This should make dollar-denominated gold a more attractive asset for foreign buyers.

Furthermore, investors may be anticipating financial market turmoil between now and January 3 if President Trump decides to shut down the U.S. government.

Essentially, whether buyers can sustain the rally in gold will be data dependent. If the economy starts to show signs of weakness especially in the labor markets, the Fed will have no choice but to back away from making any rate hikes. This will be bullish for gold prices.