Gold Price Fundamental Daily Forecast – Low Volume, US GDP Report Could Be Sources of Volatility Today

Gold futures are edging higher on Thursday, bolstered by a pullback in the U.S. Dollar against a basket of major currencies. Gains are being capped, however, by steady U.S. Treasury yields.

While most of the major players have taken to the sidelines ahead of a much anticipated speech by Federal Reserve Chairman Jerome Powell at the Jackson Hole Symposium on Friday, there is U.S. economic data today that could sway the direction of interest rate expectations.

At 06:31 GMT, December Comex gold futures are trading $1771.80, up $10.30 or +0.58%. On Wednesday, the SPDR Gold Shares ETF (GLD) settled at $163.27, up $0.50 or +0.31%.

Fed Chair Powell and Monetary Policy

Federal Reserve Chair Jerome Powell’s speech at the Jackson Hole central bankers’ meeting on Friday will be the key factor in the short-term driving the price action in the gold market.

If Powell signals the need for aggressive rate hikes then sellers should return to the gold market because rising rates increase the opportunity cost of holding non-yielding bullion. Additionally, higher rates should make the U.S. Dollar a more attractive investment. A stronger dollar is also a negative for gold demand because it makes the metal more expensive to foreign buyers.

Powell is also expected to address the possibility of a U.S. recession. This is where his words could get a little dicey. By addressing the possibility of a recession, Powell keeps the door open for a possible pivot by the central bank if the next consumer inflation, Jobs and business activity reports signal a weakening economy. All of these reports will be released before the Fed begins its next two-day meeting on September 20-21.

Powell Must Deliver Message with Clarity and Conviction

Whichever direction Powell chooses in his speech, gold investors will want to see it delivered with clarity and conviction. Powell has to be definitive in his call of the direction of rates and the risks of recession. If he wavers in his convictions, he risks the Fed’s credibility after trying to build it back after losing it last summer when the Fed called rising inflation “transitory”.

The lack of clarity and conviction from Powell is likely to cause heightened volatility in the markets because it will mean he is leaving it up to market participants to decide the direction of interest rates and the odds of a recession.

The most negative thing Powell can do for gold prices is call for the need of aggressive rate hikes to combat inflation, while emphasizing any recession will be mild and the Fed can make sure there will be a soft-landing.

Daily Forecast

While most eyes will be on Powell’s speech, some will be watching today’s U.S. GDP estimate, due to be released at 12:30 GMT.

The GDP report is expected to be of particular interest because it is used to signal recession. The first report showed a 0.9% decline. Today’s report is expected to improve slightly to -0.7%.

A weaker than expected GDP number could be the source of volatility today especially if the volume is below average. It will also generate a debate on whether the U.S. economy is actually in a recession, which could have an impact on whether the Fed continues with its aggressive plans to drive down inflation.