Price of Gold Fundamental Daily Forecast – Underpinned by Rising Expectations of Fed Rate Cut

Gold prices are trading higher on Thursday but gains are being limited by a steady U.S. Dollar despite falling Treasury yields and rising expectations of a Federal Reserve interest rate cut in July. Speculators are showing little response to the events in the Middle East that have driven crude oil prices over 4% higher. Instead the focus remains on the U.S. Dollar, interest rates and demand for risk.

At 12:00 GMT, August Comex gold futures are trading $1340.70, up $3.90 or +0.28%.

Muted Consumer Inflation Data Underpins Gold

On Wednesday, the U.S. Labor Department reported that consumer prices rose a seasonally adjusted 0.1% in May. Core CPI also rose 0.1%. Both prints fell below expectations. Year-over-year, prices rose 1.8%, while core prices increased 2%. The report supports the Fed’s case for a rate cut later this year.

This news weakened demand for the U.S. Dollar as investors increased the odds of a Fed rate hike. Policymakers are not likely to lower rates in June, by market expectations for lower rates by July were at 85.3% on Wednesday, according to the CME Group’s FedWatch tool.

Lower Demand for Risk Supportive

Stocks weakened for a second session on Wednesday, pressured by declines in technology and bank shares. Investors took some protection in the gold market.

Daily Forecast

We’re going to be keeping an eye on the developments in the Middle East due to reports of tanker explosions in the Gulf of Oman near the Iranian coastline. Gold prices could rise if it is determined the explosions were caused by an attack.

If traders decide to use the U.S. Dollar as a safe-haven asset then gold’s gains could be limited, or prices could even retreat.

There are no major reports from the U.S. today, but we could see a reaction in the dollar if the weekly unemployment report comes in bearish. This could trigger a rally in gold prices.

Despite the outside events, the primary drivers of gold prices this week have been falling Treasury yields and rising expectations of a Fed rate cut. The central bank is not likely to cut rates after next week’s two-day meeting, but it looks like policymakers will make a move in July.