Price of Gold Fundamental Daily Forecast – Failure to Spike Higher on Saudi Attacks Suggests Low Buying Interest

Gold futures are trading lower on Tuesday as concerns over an escalation of tensions in the Middle East ease with investors shifting their focus on the start of the U.S. Federal Reserve’s two-day policy meeting. “Safe-haven” buyers appear to have moved to the sidelines ahead of the meeting. This is even being seen in other safe-haven assets like Treasurys and Japanese Yen. Demand for risky assets like stocks has been strong enough to steady the equity markets.

At 09:17 GMT, December Comex gold is trading $1505.10, down $6.40 or -0.42%.

Fed Begins 2-Day Meeting

Gold is not only trading lower, but it also took out yesterday’s low, which indicates the selling is relatively strong. Also, Monday’s rally failed to impress bullish traders even with the backdrop of the attacks in Saudi Arabia.

The price action suggests gold investors aren’t worried about geopolitical tensions as they are about the Fed. Although central bank policymakers are widely expected to cut its benchmark interest rate by 25-basis points, its feelings about future rate cuts is the major concern for gold investors.

Traders will be looking at the Fed’s monetary policy statement for clues as to whether a third rate cut this year will take place in October and November.

Expectations Fed Might Not Cut Interest Rates Rising

According to CNBC, there is a third development weighing on gold prices. “Surging energy prices Monday helped add to sentiment that the Federal Reserve suddenly might not be in such a hurry to cut interest rates,” CNBC writes.

“Traders in the fed funds futures market on Monday were pricing in a 34% chance that the Fed will stay put on rates; the probability was zero a month ago and just 5.4% a week ago, according to the CME,” CNBC reported.

“While the push-through of inflation from oil prices to core prices is small, the jump in overall prices, in combination with signs that core inflation is already heating up, may make it more difficult for the Fed to cut rates further,” said Beth Ann Bovino, U.S. chief economist at S&P Global Ratings. “They had a cushion to fall back on with lower inflation – they could cut rates given inflation was low. Has the cushion been removed?”

Daily Forecast

The recent sell-off from multi-year highs indicates that gold investors have cut the chances of a U.S. recession, the current sideways price action indicates investors are searching for a new catalyst. The 25-basis point rate cut is priced in. Traders are also feeling more optimistic over U.S.-China trade relations.

If the Fed decides to pass on a rate cut in September then gold prices could plunge as much as $50. However, this is highly unlikely. If the Fed’s statement indicates it could pass on an October or December rate cut then gold could lose $25.