Price of Gold Fundamental Daily Forecast – Traders Betting on Hawkish Fed While Awaiting Omicron Assessment

Gold futures fell over 1% early in the session before rebounding slightly into the close. The market hit its lowest level since November 3, but remained inside the major retracement zone that is controlling the near-term direction of the market.

The major theme driving the market lower is the Fed’s hawkish lean that will likely lead to a faster tapering and sooner-than-expected rate hike. Expectations of more aggressive moves by the Fed helped drive Treasury yields higher as well as firming the U.S. Dollar. Increased demand for riskier assets also weighed on gold prices.

Despite these moves, some traders feel that lingering uncertainty over the Omicron coronavirus variant could provide support for gold prices. However, there is just not enough information available about the variant and its reaction to current vaccines to encourage buyers to step in.

At 21:49 GMT, February Comex gold is trading $1769.70, down $14.60 or -0.82%.

Gold Traders Reacting to Hawkish-Shift by Fed

Gold investors have become preoccupied by the possibility of the Federal Reserve tapering its asset purchasing program at a faster-than-expected pace.

They are being guided by Wednesday’s comments from the Federal Reserve Chair. Jerome Powell told U.S. House members that the “economy is very strong and inflationary pressures are higher, and it is therefore appropriate in my view to consider wrapping up the taper of our asset purchases, which we actually announced at the November meeting, perhaps a few months sooner.”

Short-Term Forecast

Powell’s words were bearish for gold prices and unless there is a major change in Fed policy between now and the December 14-15 meeting, these words will give gold traders their marching orders moving forward.

What can encourage Powell to change his hawkish tune?  We are expected to find out before the monetary policy meeting if our current vaccines are effective enough to battle the Omicron coronavirus variant.

If our current vaccines are sufficient then the Fed will stay on its hawkish course. This could push yields and the dollar higher, while weighing on demand for dollar-denominated gold.

If our current vaccines are ineffective against the variant and pharmaceutical companies have to create a new vaccine then this could put pressure on economic growth for three- to six-months. This would force the Fed to adjust their forecasts and could keep the pace of tapering at current levels. Furthermore, it may push the first expected rate hike into the future.

This event would be supportive for gold prices.