Price of Gold Fundamental Daily Forecast – Dollar Rebound Pressuring Gold Prices
Gold prices edged lower on Monday in reaction to a stronger U.S. Dollar. The Greenback was supported by expectations of more U.S. interest rate hikes this year. Investors have been driving U.S. Treasury yields higher since Friday’s payrolls data did nothing to derail the outlook for monetary policy tightening by the U.S. Federal Reserve later this year. When rates rise, demand for dollar-denominated gold tends to drop.
February Comex Gold futures settled at $1320.40, down $1.90 or -0.14%.
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Strong demand for higher risk assets may have kept a lid on prices. But, dovish comments from a Fed official were supportive. The rally in gold has been supported by the idea that the central bank will raise rates less than the three times it forecast in December.
Federal Reserve Bank of Atlanta President Raphael Bostic said the central bank should be patient as it raises rates this year. He joins other dovish Fed officials who are concerned by low inflation and the risk of an inverted yield curve.
“I am comfortable continuing with a slow removal of policy accommodation,” Bostic, who votes on policy this year for the first time in his Fed career, said Monday in Atlanta. “However, I would caution that that doesn’t necessarily mean as many as three or four moves per year.”
Bostic added that he only expected a modest bounce to growth from the tax measures. He later told reporters his base case for Fed hikes this year was “two to three, with the idea that data is going to come in to really inform how aggressively we can be moving our policy.”
Additionally, Bostic said, “My main concern is that inflation expectations risk becoming anchored below 2 percent. If this happened, it would be increasingly difficult for the Fed to hit our 2 percent target.
Forecast
Gold prices are trading lower early Tuesday. A stronger U.S. Dollar and rising equity markets are providing the pressure. At 0856 GMT, February Comex Gold futures are trading $1315.10, down $5.30 or -0.41%.
Gold should continue to weaken on a sustained move under $1317.10. Another trigger point for an acceleration to the downside is $1302.10. A full correction of the recent rally should lead to a test of $1282.80. However, it’s going to need help from a stronger U.S. Dollar.
On Tuesday, investors will get the opportunity to react to three minor reports including the NFIB Small Business Index, JOLTS Job Openings and IBD/TIPP Economic Optimism.
We don’t expect much of a reaction to the reports as investors prepare for Friday’s U.S. consumer inflation report.