Price of Gold Fundamental Daily Forecast – Will Fed Minutes Reveal Greater Than Expected Concerns Over Rising Inflation?

Gold prices rose on Tuesday in reaction to a weaker U.S. Dollar and rising uncertainty over the future of U.S.-China trade relations. Short-sellers also took profits after a recent plunge in prices ahead of Wednesday’s release of the minutes from the May U.S. Federal Reserve Monetary Policy Committee meeting.

June Comex Gold futures settled at $1292.00, up $1.10 or +0.09%.

Most of the weakness in gold was generated by the weakness in the dollar. The U.S. Dollar edged lower against a basket of currencies on Tuesday after posting six consecutive higher closes. The catalyst behind the move was a dip in Treasury yields, position-squaring ahead of the release of the Fed Meeting Minutes on Wednesday and general nervousness over the whether the dollar rally had run its course.

Pressuring gold prices for over a month has been a steady rise in U.S. Treasury yields, particularly the U.S. 10-year yield which hit a seven-year high last week. However, this week, yields have retreated from last week’s high, encouraging a few gold short-sellers to cash in their positions while awaiting the next piece of bearish news.

In other news, U.S. Treasury yields were mostly flat Tuesday, as investors prepared for the release of the minutes from the latest Federal Reserve meeting due Wednesday at 1800 GMT.

The yield on the benchmark 10-year Treasury note, was largely unchanged at 3.071 percent, while the yield on the 30-year Treasury bond was also stagnant at 3.214 percent.

Additionally, it was a light day as far as economic reports are concerned. Service sector companies saw strong growth in May, the Federal Reserve Bank of Richmond said on Tuesday.

According to the Richmond Fed’s service-sector activity survey, the service sector revenues index rose to 11 in May from 2 in April, while the number of employees index jumped to 12 from 7, the wages index inched up to 17 from 16 and the demand index rose to 17 from 11.

Forecast

The direction of the gold market today is likely to be determined by trader reaction to the Fed minutes, due to be released at 1800 GMT.

If the Fed minutes reveal greater than expected concerns over rising inflation then gold could be pressured because this would mean the central bank would have to be more aggressive in raising rates in trying to stay ahead of inflation.

Traders will be looking for clues in the minutes on the outlook for U.S. interest rates. A hawkish interpretation of the minutes could send interest rates and the U.S. Dollar higher, while putting pressure on dollar-denominated gold.

Additionally, early in the U.S. session on Wednesday, gold investors will get the opportunity to react to the latest data on Flash Manufacturing PMI, Flash Services PMI and New Home Sales. Flash Manufacturing PMI is expected to come in at 56.6, up slightly from 56.5. Flash Services PMI is expected to come in at 54.9, up from 54.6. New Home Sales are expected to drop from 694K to 680K.