Price of Gold Fundamental Daily Forecast – Upside Limited Because of Strong Stock Market

Gold futures rose to a seven-week high on Tuesday, pushed higher by the lukewarm U.S. inflation data and the nearly flat consumer spending. The data and the reaction from traders suggests investors are betting the Fed will not raise interest rates a third time later this year.

December Comex gold futures settled at $1279.40, up $6.00 or 0.47%.

Traders primarily reacted to U.S. economic data despite a firmer dollar. However, gains may have been capped by increasing demand for higher-yielding assets. Once again, investors showed little reaction to political and geopolitical events although speculative buyers have been supporting the market as of late.

In other news, the U.S. Personal Consumption Expenditure (PCE) price index was unchanged for June following a revised figure of no change for May which was originally reported as a 0.1% decline. The year-on-year increase declined slightly to 1.4% from 1.5% previously as weak energy prices continued to undermine the index.

U.S. personal income was also flat at 0.00%. This represented a decline from the 0.3% month-on-month growth reached in May. It also missed Wall Street expectations of a 0.4% rise.

Consumer spending, inched higher to 0.1% in June, matching economist forecasts. However, it was down from 0.2 percent in May.

The ISM manufacturing index came in at 56.3, coming in just below the 56.5 percent expected by economists.

Forecast

The market is trading lower early Tuesday and there was no follow-through to the upside after yesterday’s rally. This suggests investor uncertainty. It also indicates the upside may be a little limited.

The hesitation in taking this market higher could be because of the stagnant dollar this week, but most likely because of the strong demand for higher-risk assets like stocks. I’m still convinced that gold would rally substantially until stocks break sharply. This is because the money has to come from somewhere and most of it is flowing into stocks.

Gold traders have one report to watch today, the ADP Non-Farm Employment Change report at 1215 GMT. It is expected to show the private sector added 187K jobs in July.

A larger than expected number could strengthen the U.S. Dollar. This would put pressure on gold. A combination of a weak labor market and low inflation would not be good for the chances of a rate hike later in the year by the Fed. This would underpin gold, but it may not trigger a surge to the upside unless stocks break sharply.