Price of Gold Fundamental Daily Forecast – To Chase or Not To Chase? That is the Question

James Hyerczyk
Federal Reserve and Gold

Gold futures spiked higher early Thursday, amid speculation the Fed will cut rates at its July 31 policy meeting. The rally is being helped by another plunge in Treasury yields that weakened the U.S. Dollar against a basket of currencies. Earlier in the session, the spot gold market hit a six-year high by some calculation. However, the target for the August Comex gold contract is the January 25, 2018 main top at $1413.30.

At 09:59 GMT, August Comex gold futures are trading $1386.70, up $37.90 or +2.82%. The high for the session is $1397.70.

Let’s start out by saying that everything the Fed said on Wednesday is speculation. Policymakers did not say explicitly that they were going to raise rates in July.

After showing all its fancy data and “dot” projections, Fed Chair Jerome Powell held a press conference. At the press conference, he seemed to open the door to a rate cut when he said, “Many participants now see the case for somewhat more accommodative policy has strengthened.”

However, Powell also said the Fed needs to see more data to determine whether the recent weakness in things such as jobs creation was temporary or a trend. In May, just 75,000 jobs were added.

“We want to see and we want to react to developments and trends that are sustained and genuine,” said Powell. He also said the Fed is concerned by both trade conflicts and the slowing in the global economy.

“We’ll use our tools as appropriate to sustain the expansion,” said Powell.

Daily Forecast

Despite the spike in gold prices, I don’t think we’re in a “buy high, close your eyes” situation. I think the move may be an overreaction, but I wouldn’t stand in the way of the rally unless we see a reversal pattern on Friday or Monday.

I think there is a misunderstanding of what the Fed was actually saying. I think the Fed essentially bought about 40 days of insurance before it next has to make a decision about rates on July 31. It’s still going to be data dependent and not cut rates unless the data confirms the economy needs it. And conditions could change between now and then. For example, the labor market could recover from its dismal numbers from May. This means that conditions could change that first Friday in July if the jobs report comes in better-than-expected.

Furthermore, inflation could rebound if oil prices move sharply higher. Additionally, the U.S and China could renew trade talks, which would put the possibility of a trade deal back in play.

I’m a trend trader so I know not to mess with a trend, however, at the same time, I like value. So be careful chasing this market higher. Right now, it’s all about position-squaring in the dollar and the other currencies. Do you really think the Euro is bullish after what Draghi said earlier in the week?

Finally, stocks are rallying and in a position to challenge all-time highs. I believe something has to give. At some point, gold and stocks will diverge and I’ll bet on stocks moving higher, and gold lower.

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