Gold Price Fundamental Daily Forecast – Capped Ahead of ECB, Fed Rate Hike Decisions

Gold futures are edging lower on Tuesday despite a slight decline in Treasury yields and a weaker U.S. Dollar. The price action suggests investor indecision ahead of today’s U.S. reports on housing and consumer sentiment. Traders could also be heading to the sidelines early in anticipation of Thursday’s European Central Bank (ECB) and next week’s U.S. Federal Reserve monetary policy statements and interest rate decisions.

At 12:24 GMT, December Comex gold futures are trading $1645.80, down $8.30 or -0.50%. On Tuesday, the SPDR Gold Shares ETF (GLD) settled at $153.67, down $0.48 or -0.31%.

Lackluster Trade Indicates Investor Indecision

Today’s price action is being described as ‘listless’ with bullish traders somewhat reluctant to bite on the potentially friendly dip in Treasury yields and the slightly better U.S Dollar after being burned by similar moves over the past few weeks.

On Monday, gold garnered some support by expectations that the Fed may hit pause on its rapid rate hike trajectory, but that move didn’t really reflect new buyers but rather short-covering and profit-taking.

In order to generate strong upside momentum, the rally is going to have to initiate from a support base, however, one hasn’t formed yet. All we’ve been seeing is price spikes down, followed by price spikes up and that’s not very constructive for a meaningful rally.

Treasury Yields Dip on Fed Uncertainty

Treasury yields fell on Tuesday as uncertainty over future Federal Reserve rate hikes weighed on market sentiment. However, it looks as if the dip in yields isn’t enough to draw a few of the weaker gold shorts out of the market and definitely not enough to rattle the major shorts yet.

The yield on the benchmark 10-year Treasury note was last down by around five basis points to 4.177%. It has had a volatile start to the week, falling early during Monday’s trading day before recovering the decline.

Uncertainty about the Federal Reserve’s policy path has been spreading since Friday when a Wall Street Journal article raised questions about how long the central bank will continue hiking interest rates and by how much they will be increased.

Short-Term Outlook

I think gold traders should be focused on the direction of U.S. Treasury yields, especially the 10-year note.

A recent surge in the 10-year yield above 4.0% has put a major cap on gold prices. So if we are going to see a major rally in gold, it is most likely to begin on a sustained move by yields under 4.0%.

In order to drive Treasury yields lower, Fed policymakers are going to have to diverge a little at next week’s policy meeting. That could create the uncertainty needed to drive yields lower and gold prices higher.

Looking ahead, at 13:00 GMT, traders will get a chance to react to a pair of U.S. housing reports. The Home Price Index (HPI) is expected to show a -0.7% decline and the S&P/CS Composite-20 HPI is expected to come in at 14%, down from 16.1%.

At 14:00 GMT, the U.S. will release data on Conference Board Consumer Confidence and Richmond Manufacturing. The consumer confidence data is expected to show a decline from 108.0 to 105.9. This report will be scrutinized closely because it comes out only seven days before the Fed begins its two-day meeting. The results could be used to determine whether the Fed raises rates 75-basis-points or 50-basis-points.