Price of Gold Fundamental Daily Forecast – Uncertainty Over Pace of Fed Rate Hikes Providing Support

Gold futures are edging higher on Wednesday, helped by a slight dip in U.S. Treasury yields and a weaker U.S. Dollar. Volume is below average as many of the major players have moved to the sidelines ahead of the long holiday weekend. Technically, the market is finding support just slightly above a major 50% level at $1781.00.

At 13:21 GMT, February Comex gold futures are trading $1793.20, up $4.50 or +0.25%. On Tuesday, the SPDR Gold Shares ETF (GLD) settled at $167.05, down $0.04 or -0.02%.

We haven’t seen any evidence that gold is being treated as a safe-haven asset. The true safe-havens are U.S. Treasurys, the U.S. Dollar and the Japanese Yen. Gold has been looking like an investment, however, that competes with other assets like equities for investment capital.

Inflation remains a hot topic but traders don’t seem to be too bothered by it at this time, following the announcements by the Fed last week to increase tapering and raise rates at least three times in 2022.

With inflation concerns muted, the focus has shifted to the pace of the Fed’s rate cuts. The Fed said in its monetary policy statement that it plans on ending its stimulus at the end of March.

At that time, each Federal Open Market Committee meeting is expected to go “hot”. This means that it could begin raising rates as soon as April. The key word is “could”. It doesn’t have to start hiking and that’s the sticking point for Treasury investors.

Investors have been making adjustments to their portfolios to account for the possibility of delayed rate hikes by the Fed. This has caused volatility in the yield curve that has translated into a volatile gold market.

Gold could remain underpinned if Treasury traders price in slower growth or a weaker labor market. Or the two factors that would encourage the Fed to delay its first rate hike.

Contrarily, gold prices could feel downside pressure if the Fed feels the economy is growing at a fast enough pace to warrant an early rate hike.

Essentially, gold prices are expected to be capped because of the faster tapering and forecasted rate hike, however, the pace at which it weakens will be determined by the speed of the rate hikes, and that depends on the strength of the economy and the labor market.