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James Hyerczyk
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Comex Gold

If you liked the price action in the gold futures market last Thursday and Friday then you’ll likely enjoy this week’s expected movement. This is because we expected to continue to see a rangebound trade due to a mixed interpretation of the fundamentals.

The bulls see inflation, historically low interest rates and a sputtering economy as reasons to anticipate higher prices. Furthermore, they also believe the Federal Reserve isn’t really confident as to when and how it will begin tapering its long-term asset buying stimulus.

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The bears see an improving economy although a little too smooth and steady for some. Whatever the speed of the recovery, it has been consistent. They believe that inflation is temporary and it’s just a matter of time before the labor market starts to recover some of the big chunks of jobs lost at the peak of the 2020 pandemic.

Last week, December Comex gold settled at $1817.20, up $15.40 or +0.85%.

Why Bulls Anticipate Higher Prices.

The number reason gold see prices moving higher is likely rising inflation. Last week, higher inflation was confirmed by the PCE price index. Trader also cite the surge in the U.S. consumer price index (CPI).

The personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, rose 0.4% in June after advancing 0.5% in May. The so-called core PCE price index was lifted by increases in prices of airline tickets, used cars as well as hotel and motel accommodation.

In the 12 months through June, the core PCE price index shot up 3.5%, the largest gain since December 1991, after rising 3.4% in May. The core PCE price index is the Federal Reserve’s preferred inflation measure for its flexible 2% target.

Additionally, in its latest monetary policy statement released last Wednesday, the U.S. Federal Reserve left its interest rates at historically low levels and chose not to adjust the pace at which it buys government bonds each month. In other words, it maintained its current level of stimulus.

Furthermore, Fed Chair Powell said the U.S. economy is still a good deal away from making “substantial further progress” toward the Fed’s dual mandates of stable prices and maximum employment. This was an especially bullish assessment.

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Why Bears Expect Lower Prices

Last week, bearish traders looked at the PCE price index and saw that the rate of the rise in inflation was slower than previous recorded. This was enough to bring in the sellers because they read this to mean that perhaps the Fed was right and that the rise in inflation was temporary.

Additionally, while many traders were focusing on the Powell’s dovish comments, the bears were focusing on the language of the Federal Reserve’s monetary policy statement. In the statement, the policymakers acknowledged it was making some progress toward the economic improvement it wants to see before slowing down its bond buying.

Finally, gold is likely to remain under pressure as long as the U.S. Dollar is strengthening. The greenback had a setback last week, but it has posted strong gains since June 16 when the Fed moved up its timeline for its first rate hike.

Weekly Forecast

With the U.S. not scheduled to release its July Non-Farm Payrolls report until Friday and the Fed not expected to make any major decisions until September 21-22, the direction of the gold market is likely to be controlled by the whipsaw tendency of U.S. economic data and Federal Reserve member comments.

The ISM Manufacturing and Non-Manufacturing reports can drive prices in either direction. Fed speakers can offer two-sided commentary from those that want to begin tapering and those that believe the economy still has room for improvement while facing risks due to the resurgence of the coronavirus.

For a look at all of today’s economic events, check out our economic calendar.
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