Price of Gold Fundamental Daily Forecast – Strong PCE Index Data Should Pressure Prices

Gold futures are edging lower shortly before the regular session opening on Tuesday. The move is basically mirroring the price action in the U.S. Dollar index, which firmed after the Bank of Japan monetary policy announcement.

At 0851 GMT, December Comex Gold futures are trading $1227.90, down $3.60 or -0.29%.

The dollar is trading higher against the Japanese Yen after the BOJ made small tweaks to monetary policy rather than more drastic changes that some investors had priced into the market early last week. Today’s price action reflects those short sellers covering positions to offset last week’s trade.

To recap the BOJ’s policy changes, the central bank said long-term interest rates may fluctuate depending on economic and price developments and that it would conduct its bond-buying program flexibly.

The BOJ also maintained its short-term interest rate target at minus 0.1 percent and a pledge to guide 10-year government bond yields around zero percent by a 7-2 vote.

Additionally, the BOJ said it would take time for inflation to hit its 2 percent target.

Forecast

Given the slew of fresh economic news from the U.S. today, we’re likely to see some movement in the U.S. Dollar and consequently in the gold market. Of particular interest will be the impact these reports have on U.S. interest rates.

Bullish news should help raise yields, which would make the U.S. Dollar a more attractive investment. This would likely lead to renewed pressure on gold which hit a one-year low a little more than a week ago.

At just about the same time the Federal Open Market Committee starts its two-day interest rate policy meeting, it will get to see its preferred inflation gauge – the personal consumption expenditures price index – or Core PCE Price Index.

Investors expect the PCE data to show an increase of 2% year-on-year, the same as in May. Monthly, look for a 0.1% rise, versus 0.2% the previous month.

A larger than expected increase will increase the odds of additional Fed rate hikes this year, which should support the dollar and pressure gold prices.

Other key reports include Personal Spending and Personal Income which are expected to increase 0.4%.

The S&P/CS Composite-20 HPI is expected to increase 6.4% and Chicago PMI is expected to come in at 61.9, down from 64.1.

The last major report of the day at 1400 GMT is the Conference Board’s Consumer Confidence. It is expected to come in slightly better at 126.5, up from 126.4. Traders will be looking to see if consumer concerns over the on-going trade dispute between the US and China show up in this report.

Gold should remain under pressure today as long as prices stay under $1232.90. If selling volume begins to increase upon the release of bullish U.S. economic data then sellers may take a shot at $1221.00. Crossing to the strong side of $1232.90 will signal the presence of buyers. This could lead to the start of a meaningful short-covering rally.