Gold Price Fundamental Daily Forecast – Rising Global Rates Likely to Limit Short-Covering Gains

Gold futures are edging higher on Tuesday, but off their high of the session as traders wait for clues from U.S. Treasury yields and the U.S. Dollar, both are putting in a mixed performance.

After hitting its lowest level since July 21 last week, prices have stabilized. The move is being fueled by profit-taking and short-covering on the notion that the Fed may back away from a super-sized rate hike at its September 20-21 policy meeting. Nonetheless, gains are expected to be limited because the Fed is still going to raise rates perhaps until March 2023.

At 05:48 GMT, December Comex gold futures are trading $1729.50, up $8.30 or +0.48%. On Friday, the SPDR Gold Shares ETF (GLD) settled at $159.27, up $1.40 or +0.89%.

US Dollar Reverses Earlier Weakness; Central Banks to Raise Rates

After taking an earlier breather as U.S. traders returned after a long-holiday weekend, the U.S. Dollar turned higher against a basket of major currencies as investors continued to bet on a recession in Europe and sharp rises in U.S. interest rates. Meanwhile, gold traders are bracing for a series of central bank rate hikes throughout the week.

A weaker Euro is the primary reason behind the stronger dollar so far this week with rising U.S. rates taking a backseat, at least temporarily. The single currency hit a 20-year low on Monday after Russia cut off the supply of natural gas to Germany, raising the odds of a recession.

On Thursday, gold traders could feel more heat with the European Central Bank (ECB) expected to hike its benchmark rate by 50-basis points. The move is designed to drive down inflation even though it will solidify the chances of a recession in the Euro Zone.

The Bank of Canada (BOC) is also expected to supersize its rate hike later this week in an effort to fight inflation, which may have peaked, but is still running hot.

Earlier today, the Reserve Bank of Australia (RBA) raised its cash rate by 50 basis points as expected, but the RBA board surprisingly signaled further rate hikes to come, but noted that it is not on a pre-set path.

Daily Forecast

Although we’re open to the possibility of a near-term short-covering rally if gold buyers continue to defend the psychological $1700.00 level, we don’t expect to see a prolonged rally or a change in trend because rising global rates and the strong U.S. Dollar will be too much to overcome.

Any reasonable rally into resistance is likely to be met with another round of strong selling pressure that could create the downside momentum needed to break through $1700.00.

On the data front, traders will get the opportunity to react to the latest U.S. ISM Services PMI report. It is expected to dip from 56.7 to 55.4. A lower-than-expected reading could drop the chances of a 75-basis-point Fed rate hike. This could push gold prices higher.