Gold Price Forecast – Early Strength Indicates Specs are Betting on Tepid PPI Data

Gold futures are inching higher on Tuesday, but retreating from a three-month high as traders reacted to a mixed trade in U.S. Treasury bonds and the U.S. Dollar.

The market is being underpinned by hopes that the Federal Reserve would adopt a less aggressive approach on rate hikes going forward. However, the buying is little tentative for a couple of reasons including overbought technical factors and warnings from a few Fed members that the central bank is going to continue to raise rates until inflation is tamed.

At 09:41 GMT, December Comex gold futures are trading $1777.60, up $0.70 or +0.04%. On Monday, the SPDR Gold Shares ETF (GLD) settled at $164.94, up $0.38 or +0.23%.

Key Bullish Catalysts:  Uptick in US Unemployment Rate, Cooler CPI data

Fundamentally speaking, gold prices are up more than $160 since Nov. 3 for two reasons:  data from the non-farm payrolls report the first week of the month showed an uptick in the U.S. unemployment rate in October, and a tepid October consumer inflation report led to speculation the Federal Reserve would reduce the size of its upcoming rate hikes.

Traders are now pricing in an 89% probability of a 50-basis point rate hike at the Fed’s December meeting, with only an 11% likelihood of a 75-basis point rate rise.

Looking Ahead…

Today’s U.S. Producer Price Index (PPI) report, due to be released at 13:30 GMT is expected to show the headline number rose 0.4% in October. The Core PPI is expected to have risen by 0.3%.

Short-Term Outlook

Traders are going to be eyeing the PPI report for direction early Tuesday. It’s not the report per se that will drive the price action, but actually its impact on U.S. Treasury yields and consequently on the U.S. Dollar.

Cooler than expected PPI data will send yields and the dollar lower, making gold a more attractive asset.

If the PPI data comes in hotter than expected then look for gold buyers to take profits. This won’t change the trend to down, but it could encourage some of the weaker longs to trim their positions.