Price of Gold Fundamental Daily Forecast – Despite Rate Cut, Gains are Being Capped by Demand for Risk

Gold prices are trading steady to lower on Wednesday following yesterday’s surprise rate cut by the U.S. Federal Reserve and today’s stronger-than-expected ADP Non-Farm Employment Change report.

At this time, gold investors are sitting on their hands as they await further direction from other major central banks and governments regarding any more emergency moves to help cushion the economic damage caused by the coronavirus outbreak.

At 14:18 GMT, April Comex gold is trading $1643.00, down $1.40 or -0.10%.

Central banks could continue to slash interest rates, or even start buying assets as they try to get ahead of the economic damage from the spread of the virus. Meanwhile, governments are trying to determine how fiscal stimulus could work to deter the negative impact of the virus and prevent a local or even a global recession.

Also weighing on gold prices on Wednesday is strong demand for higher risk assets as the U.S. equity markets try to get back on track after yesterday’s initially bearish reaction to the Fed’s decision to cut rates two weeks ahead of schedule. Tuesday’s unexpected rate cut spooked investors into thinking the Fed saw something bad in the economy that wasn’t showing up in the data yet. Some investors and analysts felt the Fed made the wrong decision by cutting so soon and by so much.

“Cutting rates was probably a wrong decision because it also leaves the Fed with even less ammunition for future cuts … the market is based on the assumption that it’s a small plaster on the big wound and it’s not going to help in the short-term.”

The Fed received some help earlier today when a report on U.S. private payrolls showed an increase more than expected in February. ADP National Employment Report showed private payrolls increased 183K in February. Traders were looking for a reading of 170K.

Strength in the labor market is one key to sustaining the U.S. economy so the jump in the number of private sectors jobs in February shows that companies still have confidence the economy will survive the coronavirus epidemic. However, the survey may have been taken before the situation in the states began to escalate. On Friday, the U.S. will report Non-Farm Payrolls.

Daily Forecast

The next major report at 15:00 is ISM U.S. Non-Manufacturing PMI. It is expected to come in at 54.9. A lower number will paint a different picture about the economy than the jobs data, which could send gold prices higher.

Although gold prices reacted the right way to the interest rate cuts, the muted reaction suggests investors are still feeling pain from last week’s $82 loss in reaction to long liquidation designed to alleviate margin calls in other financial markets.

Gold should continue to pick up strength today if Treasury yields move lower along with stocks. However, gains are likely to remain capped if stocks continue to grind higher.