Price of Gold Fundamental Daily Forecast – Weak U.S. Dollar Could Drive Prices Over $1296.40

Gold closed lower on Wednesday as investors showed a mixed response to the Fed minutes and other external factors.

December Comex Gold settled at $1288.90, down $4.90 or -0.38%.

Increased chances of a Fed rate hike weighed on gold prices, but concerns over low inflation were supportive. Also underpinning gold was the news that Catalonia’s leader balked at making a formal declaration of independence from Spain, sending the Euro higher and the U.S. Dollar down.

Due to the importance of the Fed minutes, gold traders showed limited response to reports that the U.S. military flew two strategic bombers over the Korean peninsula in a show of force late Tuesday and that President Trump met top defense officials to discuss how to respond to any threat from North Korea.

The U.S. Dollar declined against a basket of currencies on Wednesday, hitting a two-week low, in reaction to the U.S. Federal Reserve minutes which revealed that central bank policymakers are open to an interest rate hike in December, but are still concerned about weak inflation.

The dollar also fell under pressure on fading hopes on Trump’s tax plan. Additionally, the Euro, which represents 57 percent of the index, reached a two-week peak on less worries about Catalonia.

According to the Fed minutes, several policymakers expressed some concerns over low inflation, saying they would like more data in the next few months when deciding on future rate hikes. That view pointed to a divergence between the Fed and the financial markets. Essentially, the view within the Fed raised some doubts among traders that third rate hike in 2017 would be a sure thing, though it has largely been priced into the futures market.

Some traders went as far as to say the comments on concerns about the inflation outlook can be interpreted as dovish. The futures markets, on the other hand, suggested traders saw an 88 percent chance the Fed would raise rates in December, little changed from before the release of the September meeting minutes, CME Group’s FedWatch program showed.

Traders were also concerned that an on-going dispute between U.S. President Trump and Senator Bob Corker could derail his tax reform plan.

The dollar index also lost ground after the Euro posted solid gains, supported by expectations that the European Central Bank would announce at its policy meeting near the end of October that it would wind back its 2.3 trillion Euro-buying program.

Forecast

The direction of the gold market on Thursday is likely to be influenced by the direction of the U.S. Dollar. However, gains could be limited if investor demand for higher risk assets continues to rise.

The current rally in gold has caught many short-sellers by surprise. This is because the market is saying the Fed will raise rates in December, but the Fed is saying its policymakers are still divided about a rate hike.

The daily chart indicates a sustained move over $1296.40 will be bullish and a sustained move under $1290.00 will signal the return of sellers.