Price of Gold Fundamental Daily Forecast – Too Many Better Paying Alternatives Driving Investors Away

Gold prices are trading lower early Wednesday with prices hovering around the December 12 bottom at $1251.90. Gold continues to be shunned by the hedge funds, who are aggressively moving money into the U.S. Dollar on expectations of at least two more rate hikes in 2018 by the Fed, and as many as three more next year.

At 0648 GMT, August Comex gold is trading $1257.70, down $2.20 or -0.17%.

In other news, the S&P/Case-Shiller 20-City Composite Home Price Index rose 5.4 percent in February, just below expectations for a 5.5 percent increase among analysts.

The U.S. Richmond Fed manufacturing index rose another 4 points to 20 in June after jumping 19 points to 16 in May. It came in at 11 a year ago.

Consumer confidence fell well below economists’ expectations in June, fueled by a bleak outlook for U.S. economic conditions. The Confidence Board’s index dropped to 126.4 from a revised 128.8 in May. The index was expected to hit 128.1.

On Tuesday, Atlanta Federal Reserve bank president Raphael Bostic said that intensifying trade tensions over the last week have raised the risks to the U.S. economy. He further added that he may rule out a fourth rate increase for the year if the developing trade war gets worse.

“The more it progresses in this more contentious way, the more it leads me to feel the risks are on the downside for the broader economy,” Bostic said. “If this progresses the way it has been the last couple of days there is some likelihood I will be moving away from four as a real possibility.”

Additionally, Dallas Fed Bank President Robert Kaplan said he believes the U.S. central bank’s monetary policy is still accommodative and suggested the Fed could raise rates at least two more times before it stops being accommodative. However, Federal Open Market Committee member Raphael Bostic said he may rule out a fourth rate hike this year if trade issues start to negatively affect the economy.

Forecast

Based on the recent price action and the gold market’s inability to respond to geopolitical events, we have to conclude that it’s going to take a massive sell-off in equities or the U.S. Dollar to bring investors back to the gold market.

It’s basically a problem with liquidity, the money to drive gold prices higher will have to come from somewhere because I doubt that a fund sitting on a pile of cash is just going to start buying gold, which doesn’t pay a dividend or interest. Especially with the benchmark U.S. Treasury yield at nearly 3.00 percent.

So stocks will have to sell off sharply to generate cash and investors are going to have to be so spooked by the event that they are willing to place money in an asset that doesn’t pay anything to hold. Until this happens, gold prices are likely to continue to drift sideways to lower.

There are several U.S. economic reports that could also contribute to the price action today, but nothing more than some intraday short-covering, or a further deterioration in prices.

U.S. Core Durable Goods Orders are expected to come in at 0.5%, down from the previously reported 0.9%. Durable Goods Orders are expected to show a 0.9% decline, better than the previously reported 1.6% decline.

The Goods Trade Balance is forecast at -68.9 Billion versus the previously revised higher -67.3 Billion. Preliminary Wholesale Inventories are estimated at 0.2%, better than the previously revised lower 0.1%.

Pending Home Sales are expected to show a 0.4% increase. Federal Open Market Committee member Randal Quarles is also expected to speak at 1500 GMT. He could move the markets if he comments on the impact of the trade war on the U.S. economy and the Fed’s future rate hike plans.