Gold Price Fundamental Daily Forecast – Expect More Short-Covering if GDP Misses 2.3% Forecast

Gold futures are trading flat on Thursday, just under a two-week high reached the previous session, as traders awaited a key interest rate decision by the European Central Bank (ECB) and a major U.S. economic growth report.

The ECB decision to raise rates by 75 basis points has probably been baked into gold prices for weeks. So the focus is likely to be on the U.S. Advance GDP report. Since it could cement the chances of the Federal Reserve easing the pace of its interest rate hikes at next week’s policy meeting.

The Fed’s move would likely keep a lid on U.S. Treasury yields and the U.S. Dollar while underpinning gold prices.

At 06:24 GMT, December Comex gold is trading $1668.50, down $0.70 or -0.04%. On Wednesday, the SPDR Gold Shares ETF (GLD) settled at $154.99, up $0.99 or +0.64%.

Gold Traders Eyeing Central Bank Activity

The European Central Bank (ECB) is expected to raise rates again on Thursday and likely reel in a key subsidy to commercial banks, taking another huge step in tightening policy to fight off a historic surge in inflation.

The ECB is almost certain to raise its 0.75% deposit rate by 75 basis points – for a cumulative 2 percentage-point increase in three meetings – and signal that it is not yet done, even if the size of subsequent moves remains open to debate.

But in a potentially more important decision, the bank is also likely to take the first steps in reducing its 8.8 trillion Euro balance sheet, bloated by years of debt purchases and ultra-cheap loans extended to banks.

On Wednesday, the Bank of Canada (BOC) surprised traders with a smaller-than-expected interest rate hike and said it was getting closer to the end of its historic tightening campaign as it forecast the economy would stall over the next three quarters.

The central bank increased its policy rate by half a percentage point to 3.75%, coming up short on calls for another 75 basis points move. It has lifted rates by 350 basis points since March, one of its fastest tightening cycles ever.

Early Friday, the Bank of Japan (BOJ) is expected to continue with its ultra-dovish policy. But if it’s really committed to driving the Yen higher then it will have to make a surprise hawkish tweak to policy.

The other major central banks, the Reserve Banks of Australia (RBA) and New Zealand (RBNZ) are committed to raising rates with the RBA likely to hike its benchmark by 50 basis points instead of 25 basis points after this week’s reported jump in consumer inflation.

Short-Term Outlook

There is nothing in this week’s central bank activity that screams ‘buy gold’. Nonetheless, gold could still rally because of short-covering and position-squaring as traders react to various moves by policymakers.

Although traders expect the Federal Reserve to raise rates by 75 basis points next week, the focus for traders will be on what policymakers say about future rates hikes. If they are less-hawkish then gold is likely to move higher. Gold prices are likely to continue their downtrend, however, if the Fed comes across as hawkish.

It sounds simple but most of the moves by gold this year have been textbook reactions to the Fed, and we expect this trend to continue.

Gold traders should note, however, that a shift in policy by the Fed to less-aggressive rate hikes in December will not be a trend changing event. It’s actually a position-adjusting event. The Fed is still going to keep raising rates until they gain control of inflation, which means any rally in gold is likely to be capped.