Gold Price Fundamental Daily Forecast – Volatile Dollar, Euro Controlling Price Action

Gold futures are inching higher late Monday after rebounding from a one-month low reached earlier in the session. The so-called ‘technical bounce’ is being fueled by a sell-off in the U.S. Dollar.

The greenback hit a 20-year high against a basket of major currencies early Monday, but turned lower when the Euro surged following hawkish comments from a European Central Bank (ECB) official.

Gold started out weaker with follow-through selling tied to Friday’s hawkish comments from Federal Reserve Chairman Jerome Powell.

At 18:53 GMT, December Comex gold futures are trading $1750.10, up $0.30 or +0.02%. This is up from an intraday low of $1731.40. The SPDR Gold Shares ETF (GLD) is at $161.89, up $0.13 or +0.08%.

Dollar, Euro Movement Setting Tone

The volatility in the gold market on Monday is being fueled by volatile, two-sided price action in the U.S. Dollar Index and the Euro.

The initial drive lower in gold was generated by follow-through selling tied to the hawkish comments from Fed Chair Powell on Friday.

Powell drive the greenback higher after he signaled interest rates would be kept higher for longer to bring down uncomfortably high inflation.

Powell told the Jackson Hole central banking conference in Wyoming on Friday that the Fed would raise rates as needed to restrict growth, and would keep them there “for some time” to bring down inflation that is running at more than three times the Fed’s 2% goal.

Money markets ramped up bets for a more aggressive Fed rate hike in September, with the chances of a 75 basis point hike now seen around 70%. U.S. Treasury yields also rose sharply, with two-year bond yields hitting a 15-year high at around 3.49%, bolstering the greenback.

Credit for the turnaround in the gold market is being given to hawkish comments from several ECB officials, who signaled the need for more aggressive monetary policy. The news underpinned the Euro while weighing on the dollar index.

Expectations for a supersized September rate hike in the Euro area also rose. ECB board member Isabel Schnabel warned on Saturday that central banks risk losing public trust and must act forcefully to curb inflation, even if that drags their economies into a recession.

Short-Term Outlook

Continue to look for heightened volatility in the gold market as U.S. Dollar and Euro investors make adjustments to their positions based on economic data and the comments from Fed and ECB officials.

There is still a bearish bias against the Euro because of the strength in the U.S. Dollar and hawkish commentary from Fed officials, while ECB officials have been relatively quiet. Short-term market conditions could shift rather quickly, however, if ECB policymakers start talking about the need for more aggressive rate hikes. Nonetheless, the ECB can only do so much given that they are likely to be held back by an energy crisis in the Euro Zone that raises recession risks.