Price of Gold Fundamental Daily Forecast -Traders Await Fed Minutes While Dealing with Inflation Fears

Gold futures are edging lower on Wednesday, testing their lowest level since late December, following a more than 2% plunge the previous session. Despite the early setback, volume is on the light side as traders await key economic data as well as the release of the minutes of the U.S. Federal Reserve’s last monetary policy meeting.

At 11:08 GMT, August Comex gold futures are trading $1761.30, down $2.60 or -0.15%. On Tuesday, the SPDR Gold Shares ETF (GLD) settled at $164.74, down $3.58 or -2.13%.

Key Factors Driving Prices Lower:  Hawkish Fed, Safe-Haven Demand for Dollars

Although cheap prices are attracting some bargain hunters, most traders are more interested in the direction of U.S. interest rates and the U.S. Dollar.

The Federal Reserve is controlling the overall direction of interest rates. It is expected to keep the upside pressure on rates in order to drive inflation lower. This is the primary factor weighing on gold prices.

Increasing fears of a recession, however, are driving investors into the safe-haven U.S. Treasurys and the U.S. Dollar. The strong greenback is another reason for the drop in gold prices.

Essentially, rising interest rates reduce demand for non-yielding gold, while a stronger greenback drives down foreign demand for dollar-denominated gold.

Treasury Yields Inching Higher Amid Market Volatility; Yield Curve Remain Inverted

U.S. Treasury yields were higher early on Wednesday after a volatile day on Wall Street, but the closely watched 2-year/10-year yield curve remained inverted, a key recession warning.

The market has become increasingly concerned about the potential for recession. In recent weeks as economic data has weakened, while Federal Reserve Chairman Jerome Powell has committed to aggressive action to fight red-hot inflation. Should the central bank hike interest rates too sharply, the subsequent slowing of the economy could tip into recession.

US Dollar Rises as Recession Fears Hit Euro, British Pound

The U.S. Dollar continues to rise against a basket of major currencies especially the Euro and British Pound on Wednesday. The move is being fueled by higher gas prices in Europe and the U.K., which is driving recession fears. It’s also driving investors to seek shelter in the U.S. Dollar.

Traders are now betting that it’s not just a recession rattling the markets, but how deep that recession will be as well as its duration.

Short-Term Outlook

Like the European Central Bank (ECB), the Federal Reserve has to juggle the need to raise interest rates aggressively to fight inflation without causing a recession. Traders are hoping today’s release of the minutes from the U.S. central bank’s June 14-15 meeting will offer clues as to whether the Fed has a plan to fight inflation while trying to prevent a recession.