Price of Gold Fundamental Daily Forecast – U.S. Economic Data Dictating the Price Action

Gold prices fell from an 11-month high earlier in the week to close lower on Wednesday. Solid U.S. economic data drove up U.S. Treasury yields on increased odds for a December rate hike by the Fed. This helped make the U.S. Dollar a more attractive investment and encouraged investors to take profits in the dollar-denominated gold futures contract.

December Comex Gold settled at $1314.10, down $4.80 or -0.36%.

The price action was primary driven by stronger-than-expected U.S. economic data.

A Commerce Department report said on Wednesday that the second estimate of U.S. Gross Domestic Product showed that the economy grew at an annual 3.0 percent pace in the second quarter, the fastest in more than two years. Traders were looking for an increase of 2.7 percent, up from 2.6 percent.

The ADP National Employment Report showed U.S. private-sector employers hired 237,000 workers in August for the biggest monthly increase in five months, driving expectations for a solid U.S. August Non-Farm Payrolls figure.

In the wake of the solid economic data, futures market traders increased the chances of a Fed rate hike before the end of the year. The CMEGroup’s Fed Watch tool showed the chances of a Fed rate hike in December rose from 34 percent earlier in the week to 41 percent.

Forecast

As long as North Korea remains out of the picture, gold is vulnerable to the downside because aside from the inflation data, the U.S. economy is performing quite well and this may be enough to convince the Fed to raise rates later in the year. This will occur if they become convinced that the strong economy will eventually push inflation into their 2.0 percent target.

The Fed basically has two choices:  Let inflation overshoot the target then raise rates, or continue to raise rates to ease inflation’s move into the target.

Increased demand for higher risk assets will also limit gold’s gains.

Today, investors will get the opportunity to react to a number of U.S. economic reports. Stronger than expected data will continue to push the odds of a rate hike higher. Right now, the chances of a rate hike sit at about 41 percent. Should they move over 50 percent then gold will get hit hard.

The first report today is Challenger Job Cuts. Last month, the report came in at -37.6%. There is no forecast, but the lower the percentage the better. This report represents a change in the number of job cuts announced by employers.

Weekly Unemployment Claims are expected to come in at 237K.

Core PCE Price Index is expected to come in at 0.1%. Personal Spending is expected to rise 0.4% and Personal Income is expected to rise 0.3%. Last month, the report was flat.

Chicago PMI is forecast at 58.7 and Pending Home Sales are estimated to rise 0.4%.

Stronger-than-expected U.S. economic data will be bearish for gold because it is likely to increase the chances for a Fed rate hike.