Gold Price Fundamental Daily Forecast – Soft US CPI Data Could Spike Prices Higher

Gold futures jumped on Monday as investors covered shorts ahead of key U.S. inflation data that could offer cues as to the pace of future interest rate hikes by the U.S. Federal Reserve. The catalyst behind the rally was a weaker U.S. Dollar as investors shrugged off a slight rise in U.S. Treasury yields.

On Monday, December Comex gold futures settled at $1740.60, up $12.00 or +0.69%. Additionally, the SPDR Gold Shares ETF (GLD) finished at $160.62, up $0.80 or $0.50%.

Dollar Tumbles as Euro Soars on Hawkish Rate Hike Expectations

The Euro moved sharply higher against its U.S. counterpart on Monday after European Central Bank officials signaled further rate hikes to rein in inflation. The dollar may have also been pressured by the perception of it being overbought. The weakness in the greenback made dollar-denominated gold a more attractive asset to holders of foreign currencies.

Adding further to the Dollar’s woes on Monday, the New York Fed’s monthly consumer expectations survey showed that U.S. consumers’ inflation expectations slid further in August as gasoline prices extended their steep decline from June’s record high, a development likely to bring some relief to U.S. central bank officials who have been worrying that the highest inflation in 40 years might change consumers’ perceptions of how sticky the current price shocks may be, according to CNBC.

Gold Could Be Lifted by Soft US Inflation Data

Tuesday’s U.S. Consumer Price Index (CPI) report, due to be released at 12:30 GMT, is expected to show August prices rose at an 8.1% pace over the year, versus an 8.5% print for July.

Core inflation, which excludes energy and food prices, is forecast to have edged up 0.4 percent month-on-month in August, following a reading of 0.3 percent in July.

It’s our belief that the Fed won’t be swayed by softer inflation data and that it will raise rates by 75-basis-points at its September 20-21 policy meeting. However, gold traders are likely to react to what policymakers are likely to do at the November and December policy meetings.

Gold could rally if soft CPI data signals the need for only 50-basis-point rate hikes on November 2 or December 14. Gold is likely to plunge, however, if inflation remains stubbornly high.

Bullion prices could also continue to be lifted by a strong Euro especially if the inflation report signals a softer response from the Fed in November and December.

To sum it up, gold traders have already priced-in a 75-basis point rate hike by the Fed on September 21. Professionals have already moved on from that date and are looking at November and December, and perhaps how early the Fed could stop raising rates in 2023.