Price of Gold Fundamental Daily Forecast – Traders Eyeing Market Rate Hike Expectations, Fed Member Outlooks

Gold futures edged higher on Friday, following a late session price surge that solidified a fourth week of gains. The catalyst behind the move may have been the paring down of expectations of aggressive policy tightening by the Federal Reserve. Gains may have been limited, however, by a number of hawkish remarks from several Fed members throughout the week.

Technical factors may have also contributed to the price action with the market currently sitting inside a key 50% to 61.8% retracement zone at $1798.50 to $1822.60 that could determine the near-term direction of the market.

On Friday, December Comex gold futures settled at $1815.50, up $8.30 or +0.46%. The SPDR Gold Shares ETF (GLD) finished at $167.86, up $1.52 or +0.91%.

The price action suggests investors were reacting to a dip in Treasury yields, while downplaying a slight uptick in the U.S. Dollar against a basket of currencies.

Underpinned by Cooling Inflation, Drop in Chances of 75 Basis Point Rate Hike

Gold was primarily supported last week after the dollar index retreated as signs of cooling consumer and producer price inflation in the United States prompted traders to pare bets of aggressive policy tightening by the Federal Reserve.

As of Friday’s close, the odds of a 75-bps hike in September had fallen to around 45 percent and the chances of a 50-bps hike had risen to 55 percent.

Hawkish Fed Comments May Be Capping Gains

After the release of softer-than-expected U.S. consumer inflation data last Wednesday, Minneapolis Fed President Neel Kashkari said he is sticking to his view that the U.S. central bank will need to raise its policy rate another 1.5 percentage points this year and more in 2023, even if that causes a recession.

Chicago Fed President Charles Evans said he believes the Fed has plenty more work to do before inflation is under control.

Following Thursday’s lower-than-expected U.S. Producer Price Index report, San Francisco Federal Reserve Bank President Mary Daly warned on Thursday it is far too early for the U.S. central bank to “declare victory” in its fight against inflation.

Looking Ahead…

Gold traders could face another week of choppy price action with the U.S. Retail Sales report attracting the most attention along with the Fed minutes on Wednesday.

Meanwhile, the price action is likely to be dictated by the divergence between the market’s dovish rate hike expectations and the Fed’s hawkish view about where rates should be headed. Needless to say, both conclusions will be data dependent.