Price of Gold Fundamental Daily Forecast – Underpinned as World Bank Slashes Global Growth Forecast
Gold futures are trading slightly higher after spending most of the session inside yesterday’s trading range. The price action suggests investor indecision and impending volatility. Traders are taking their direction from the U.S. Dollar and U.S. Treasury yields. Both are delivering mixed signals which is leading to today’s passive trade.
This week’s choppy trade also suggests that many of the major players are on the sidelines ahead of Friday’s U.S. Consumer Price Index (CPI) report and perhaps even next week’s major policy decision from the U.S. Federal Reserve.
The news isn’t helping sentiment either. On the bearish side, we have rising Treasury yields and a firming U.S. Dollar. That’s pretty clear. However, on Wednesday, these factors are being offset somewhat by the World Bank’s slashing of its global growth forecast.
Yields Climb amid Growth and Inflation Fears
U.S. Treasury yields are up early Wednesday as investors await a key inflation indicator and assess signs of slowing economic growth.
The U.S. consumer price report (CPI), due Friday, is expected to provide more clues on the Fed’s rate-hiking path, ahead of next week’s policy decision, where a half-point increase is widely expected.
Economists polled by Reuters are expecting the CPI to have gained 5.9% on the year, after an annual rise of 6.2% in April.
Rising yields tend to weigh on gold prices because bullion doesn’t pay a dividend or interest to own it.
World Bank Slashes Global Growth Outlook
Tthe World Bank cut its 2022 global growth forecast on Tuesday by nearly a third to 2.9%. This news may be providing support for gold prices on Wednesday.
In its report, the World Bank said it isn’t expecting a major turnaround in the global economy anytime soon. It further warned that global growth should “hover around” the 2.9% level for both next year and 2024, describing the next few years as “a protracted period of feeble growth and elevated inflation.”
Gold could remain rangebound until the release of Friday’s U.S. CPI report.
The World Bank’s proclamation is a new key issue because it gives credibility to the possibility of a global recession. A slowdown in the global economy would cause the major central banks to stand up and take notice. This would put pressure on them to slow down the pace of rate hikes. This is potentially bullish for gold prices.