Price of Gold Fundamental Daily Forecast – Cautious Traders Tracking Yields Ahead of Powell Testimony

Gold futures are trading nearly flat shortly before the regular session opening on Tuesday while hovering near a seven-week low hit last week. Earlier in the session, the market gave back some of yesterday’s gains in response to an uptick in Treasury yields and a firmer U.S. Dollar. Volume is relatively light and traders are being cautious ahead of the Congressional testimony of Federal Reserve Chairman Jerome Powell later in the day.

At 10:35 GMT, August Comex gold is trading $1784.30, up $1.40 or +0.08%.

Aside from Powell’s testimony, the early choppy trade suggests investors are responding to the overnight weakness in the stock market. Lower equity prices may be driving up demand for safe-haven Treasury bonds, which could be boosting the investment appeal of gold.

Despite yesterday’s more than 1% gain, gold is still trading inside Friday’s range, which tends to indicate investor indecision although some may think gold is building a support base due to temporarily oversold conditions.

Fed Officials Chime In with Confusing Outlook

The mixed price action in gold the past two sessions is understandable, given the comments from three Fed officials on Monday.

Yesterday, hawkish Fed officials such as St. Louis Fed President James Bullard and Dallas Fed President Robert Kaplan had remarked on the risks of acting too slowly.

However, New York Fed President John Williams said it was too soon to shift policy, and that he expects inflation to ease from about 3% this year to close to 2% in 2022 and 2023 – leaving traders none the wiser.

Powell Set to Speak Before House Select Subcommittee on Coronavirus Crisis

In prepared comments, which were released Monday evening ahead of Fed Chair Powell’s testimony at 18:00 GMT, Powell said that while the “economy has sustained improvement,” it still faces continued threats from the COVID-19 pandemic.

“Widespread vaccinations have joined unprecedented monetary and fiscal policy actions in providing strong support to the recovery. Indicators of economic activity and employment have continued to strengthen, and real GDP this year appears to be on track to post its fastest rate of increase in decades,” Powell said. “Much of this rapid growth reflects the continued bounce back in activity from depressed levels.”

Daily Forecast

The direction of the gold market today will be largely influenced by how investors interpret Powell’s tone at his testimony before the Congressional sub-committee.

Last week, the Fed raised inflation expectations and signaled an interest rate increase could happen sooner than expected. During his testimony, if he says he would be open to a sooner-than-expected rate hike if the labor market were to suddenly tighten then gold prices could fall further. If Powell reiterates last week’s decision then we could see more short-covering since the negative news has for the most part been already priced-in.