Price of Gold Fundamental Weekly Forecast – Jobs Data May Offer More Clarity on Fed’s Next Move

Gold futures edged higher last week but the price action was mostly subdued as investors continued to digest mixed comments from Federal Reserve officials on the direction of interest rates. Gold was likely being underpinned by a weaker U.S. Dollar and as investors tempered bets for early monetary policy tightening by the central bank.

Last week, August Comex gold settled at $1777.80, up $8.80 or +0.50%.

Dovish Powell Supportive, but Gains Capped by Hawkish FOMC Members

Early last week, Federal Reserve Chair Jerome Powell said in prepared testimony for a congressional hearing that the U.S. economy continues to show “sustained improvement” from the impact of the coronavirus pandemic and ongoing job market gains, but inflation has “increased notably in recent months.”

Powell did not go into detail in his prepared remarks on current monetary policy, or the possibility the U.S. central bank may have to speed up it plans to pull back on some support for the economy because of the faster rise in prices.

In his remarks, Powell said he regards the current jump in inflation, in fact, as likely to fade.

“We will not raise interest rates pre-emptively because we fear the possible onset of inflation. We will wait for evidence of actual inflation or other imbalances,” Powell said in a hearing before a House of Representatives panel.

Not all Fed members were on the same side as Fed Chair Powell, however.

St. Louis Fed President James Bullard said the Federal Reserve should be prepared for inflation to surprise on the high end through next year.

Atlanta Fed President Raphael Bostic said with growth surging to an estimated 7% this year and inflation well above the Fed’s 2% target, he now expects interest rates will need to rise in late 2022. Both Bostic and Fed Governor Michelle Bowman said that while they largely agree recent prices increases will prove temporary, they also fell it may take longer than anticipated for them to fade.

Weekly Forecast

Given the Powell remarks, Fed member responses and Friday’s PCE inflation report that came in as expected, gold traders have chosen to take to the sidelines until they get more clarity. The clarity could come in the form of Friday’s U.S. Non-Farm Payrolls report.

The Fed is currently walking a delicate line as it balances inflation risks with its promise to ensure the economy recovers all the jobs lost after the onset of the coronavirus pandemic.

Although inflation is high, the Fed can’t start tightening because it could slow the economy before the labor market catches up. This could help support gold prices.

A strong jobs report could hurt gold prices because it would mean the labor market is still growing despite high inflation. If this trend continued then it would move the Fed closer to tightening.