Price of Gold Fundamental Daily Forecast – Supported after Release of Less-Hawkish than Expected Fed Minutes

Gold futures are edging higher on Thursday as investors interpreted Wednesday’s Fed minutes as neutral after central bank policymakers showed that conditions necessary to order a slowdown of its asset purchases had yet to be met.

Nonetheless, the minutes from the central bank’s July meeting showed that policymakers in the United States felt the employment benchmark for decreasing support for the economy could be reached this year.

Although the U.S. central bank is largely expected to begin tapering its asset purchases in the coming months, pushing the dollar to its highest level in months, gold traders seemed to be unfazed by the move in the greenback. This may be because there is still some uncertainty over the exact timing and pace of the removal of monetary stimulus.

At 11:18 GMT, December Comex gold futures are trading $1790.60, up $6.20 or +0.35%.

FOMC Minutes a Mixed Bag

The FOMC minutes offered a mixed bag of information for gold traders, but the price action suggests the news was somewhat less-hawkish than investors had feared.

The area of interest for the Fed appears to be the strength of the labor market. While inflation in the United States is above target, the Fed’s stance that the maximum-employment goal had not been met suggests the timeframe for a tapering announcement is very unlikely to come at the September meeting.

Daily Forecast

Investors will be watching for any signs the Fed will start to taper bond purchases and end the extraordinary stimulus put in place to combat the economic impact of the COVID-19 crisis.

This includes today’s weekly unemployment claims, next week’s central bankers’ summit at Jackson Hole, Wyoming, the August Non-Farm Payrolls report due the first week of September and the August consumer inflation data during the second week.

With the Fed not scheduled to meet until September 21-22, there is a lot of time for the economy to evolve either to the better or the worst.

While Federal Reserve officials felt their employment benchmark for decreasing support for the economy “could be reached this year,” they appeared to disagree on other key aspects of where monetary policy should turn next in the transition from the pandemic crisis.

This may be creating just enough uncertainty to keep gold prices underpinned over the short-run.

Our work suggests to expect heightened volatility until at least the Fed meeting. We do believe the upside will be limited because like it or not, tapering is coming, but we can’t rule out a good-sized breakout over $1800.00.

On the other hand, if we could see a pullback into $1737.80 to $1723.60 before prices move higher. It’s difficult to buy strength with tapering coming at some point, but it may not be too hard to buy gold if there is a pullback into an established support area.