Price of Gold Fundamental Daily Forecast – Uncertainty Over Pace of Fed Rate Hikes Lifting Prices

Gold futures are trading higher Thursday but the market remained inside last Friday’s wide range for a fourth session as traders awaited the results of Thursday’s European Central Bank monetary policy decisions later today.

More importantly, investors are starting to position themselves ahead of next week’s U.S. Federal Reserve monetary policy meeting, where policymakers are expected to announce the start of tapering its massive stimulus.

Traders will also be looking for clues as to the timing of the first Fed rate hike, which the financial futures market has priced in as July 2022.

Essentially, the direction of the gold market over the next several months is likely to be determined by how fast the Fed decides to raise its benchmark interest rates. The major issue here is whether a too aggressive Fed would slow down the economic recovery too quickly even before the labor market returns to pre-pandemic levels.

At 08:01 GMT, December Comex gold is trading $1803.50, up $4.70 or +0.26%.

Technically, Gold is currently straddling a long-term pivot at $1795.00. Trader reaction to this level should determine the near-term direction of the gold market.

ECB, US Economic Reports Move to Forefront

The European Central Bank’s (ECB) policy decision due later today could influence gold prices today, but since it’s been telegraphed for weeks, it may have already been priced into the market. The ECB is expected to present a dovish message. If this weakens the Euro against the U.S. Dollar then gains could be capped in the gold market.

Traders will also be monitoring US Advance GDP and Weekly Initial Claims. The strength of these reports could influence the pace of future Fed rate hikes. Advance GDP is expected to come in at 2.6%, down from 6.7%.

Short-Term Outlook

If the Federal Reserve comes across as hawkish by announcing an aggressive tapering strategy and a definitive timeline for future rate hikes, then look for prices to break sharply under $1795.00

If the Federal Reserve is dovish by announcing a tentative tapering strategy and an inclusive rate hike strategy, then prices are likely to trade on the strong side of $1795.00.

By guess is the Fed will come in with an aggressive tapering strategy then take a “wait and see” approach to the first rate hike. It will first want to see how the economy and especially the labor market responds to the cut in stimulus. Then if inflation starts to level off, they’ll consider a first rate hike.

By my estimates, the hawkish tapering and dovish rate hike approach, will keep gold prices in a range. The top of the range will likely be $1795.00 and the bottom of the range $1716.00.

A sustained move over $1795.00 will indicate the buying is getting stronger, and a sustained move under $1716.00 will put the market in a bearish position.