Price of Gold Fundamental Daily Forecast – Traders Looking for Clarity from Powell on Strength of Economy

Gold futures are trading slightly lower and inside yesterday’s range shortly before the regular session opening and the start of two days of Congressional testimony by Federal Reserve Chairman Jerome Powell. The price action suggests investor indecision and impending volatility. Traders will also get a chance to respond to the minutes of the June Federal Reserve monetary policy meeting.

At 11:55 GMT, August Comex gold futures are trading $1396.90, down $3.60 or -0.26%.

After posting solid gains throughout most of June, gold has been under pressure since June 25 when Powell dampened the chances of a 50-basis point interest rate cut, which had been priced into the markets.

Ahead of Powell’s testimony, the chances of a half-a-point rate cut have dropped to nearly zero percent, however, investors still expect a 25-basis point rate cut due to weak inflation and the potential for a global economic slowdown or recession due to the lingering trade dispute between the United States and China.

Gold has primarily been pressured by a rise in Treasury yields, which has made the U.S. Dollar an attractive asset. At the same time, the stronger dollar has led to lower demand for dollar-denominated gold.

Daily Forecast

Powell will either hint at a rate cut, hint at no rate cut, or tell Congress he’s still looking at the data.

However, we all want to hear his thoughts on the strength of the U.S. economy and whether the Fed is leaning toward a rate cut. Financial market investors also want clarity from the Fed chief:  cut, no cut, or still unsure and watching the data. He cannot continue to be ambiguous.

Diane Swonk, chief economist at Grant Thornton says, “He will affirm the economy remains solid, if not spectacular. What matters most is what he sees as headwinds and how he characterizes those risks. They are driving the desire to do an insurance cut.”

RBC Capital Market’s Tom Porcelli says, “We do not believe there is justification to cut rates at this juncture. And we would like nothing more than Powell to express that view during Wednesday’s congressional testimony.

With investors already pricing in a late July rate cut, they will be more interested in his view on the strength of the economy so they can decide what to do about September. If Powell hints at a rate cut in July and September then look for gold prices to rally. If Powell is hawkish about the economy then gold prices could fall sharply.