Price of Gold Fundamental Daily Forecast – Weak CPI Data Will Be Bullish

Gold prices rose on Thursday as the safe-haven asset continued to climb towards a four-month high after minutes of a European Central Bank meeting showed a more hawkish tone and boosted the Euro against the U.S. Dollar.

February Comex Gold futures settled at $1322.50, up $3.20 or +0.24%.

Gold buyers also responded to weak economic data which drove down the U.S. Dollar, helping to boost demand for the dollar-denominated commodity. Buyers also increased bets the Fed may have to cut back on the number of interest rate hikes it forecast at its last meeting in December.

The Euro, which accounts for about 57 percent of the index, rallied after ECB policymakers said in minutes of the bank’s December meeting that they could revisit their communication stance in early 2018, boosting expectations that they are preparing to reduce their vast monetary stimulus program.

The EUR/USD rallied because investors interpreted the minutes as hawkish since they could be signaling that the ECB will wind down its 2.55 trillion Euro ($3.07 trillion) bond purchase scheme this year if Europe’s economy continues to grow.

U.S. producer price data showed the index fell for the first time in nearly 1 ½ years in December, which could temper expectations that inflation will accelerate in 2018.

The Labor Department said its producer price index for final demand slipped 0.1 percent last month. That was the first drop in the PPI since August 2016 and followed two straight monthly increases of 0.4 percent.

In the 12 months through December, the PPI rose 2.6 percent after accelerating 3.1 percent in November. Economists had forecast the PPI rising 0.2 percent last month and increasing 3.0 percent from a year ago.

Last year, the PPI increased 2.6 percent after advancing 1.7 percent in 2016.

Forecast

Based on yesterday’s reaction to the weaker-than-expected PPI data, gold traders will be focused on today’s U.S. consumer inflation report. This report will be the primary market driver. A weak CPI report will be bearish for the U.S. Dollar because it will probably lower the odds of at least three rate hikes by the Fed in 2018. This will be bullish for gold prices.

Gold will likely weaken if the CPI data comes out better-than-expected but this will probably be profit-taking and position-paring, and not necessarily be a trend changing event.

Monthly CPI is expected to come in at 0.1%. Core CPI is forecast at 0.2%.

The daily chart shows the gold market has plenty of room to the upside with $1365.80 the near-term target.