Price of Gold Fundamental Daily Forecast – Tax Reform Issue Keeps Gold Rangebound

Gold prices fell on Wednesday as investors reacted to upbeat economic data which boosted the chances of interest rate hikes in December and perhaps as many as three times in 2018.

The whip-saw action by the U.S. Dollar produced a similar move in gold. The precious metal remains capped by concerns over rising interest rates and supported by weakness in U.S. equity markets.

December Comex Gold settled at $1277.70, down $5.20 or -0.41%.

In economic news, data showed a surprise rise in retail sales last month and an uptick in underlying inflation, solidified the chances for an interest rate hike in December.

The Labor Department said on Wednesday its Consumer Price Index edged up 0.1 percent last month after jumping 0.5 percent in September. Traders were looking for an increase of 0.1 percent in October.

U.S. Retail Sales rose 0.2 percent last month. Economists had expected an unchanged reading.

Forecast

Wednesday’s price action strongly suggests that gold investors are paying more attention to the Fed rate hike in December than the volatility and weakness in the stock market. Since the stock market is being strongly influenced by the delay in U.S. tax reform, the outcome of this event may be the trigger for the next major move in the gold market.

The sideways price action in gold suggests that investors are still weighing the outcome of tax reform and whether it can become law before the end of the year. Several key issues remain that could lead to a prolonged debate between the U.S. House and the U.S. Senate as they try to hammer out their differences.

On Wednesday, House Speaker Paul Ryan told CNBC’s “Squawk Box” that the House will not repeal the Obamacare individual mandate before the Senate does. However, a revised version of the Senate’s tax plan includes a measure that effectively repeals a law requiring most Americans to buy health insurance or pay a tax penalty.

Republican Sen. Ron Johnson announced his opposition to the Senate tax plan as currently written. The Wisconsin legislator is the first GOP senator to voice explicit opposition to the proposal; Johnson’s objection stems from his feeling that the plan disproportionately favors corporations, according to The Wall Street Journal.

On Thursday, investors will get the opportunity to react to several U.S. economic reports. These include Weekly Unemployment Claims, Import Prices, the Philly Fed Manufacturing Index, Capacity Utilization and Industrial Production.

I don’t think these reports are going to have much impact on gold prices today since the primary focus will be on tax reform, the direction of Treasury yields, the U.S. Dollar and equity prices.

I can’t get bullish on gold until I see a sustained move over the major technical retracement zone at $1290.00 to $1296.40. I also think that buyers will throw in the towel when the October 6 bottom at $1262.80 is taken out with conviction. Until then, we’re likely to remain in a range.