Price of Gold Fundamental Daily Forecast – Early Strength Reflects Dip in Odds of Super-Sized Fed Rate Hike

Gold futures are edging higher on Wednesday as U.S. Treasury yields test a key resistance area that could determine the direction of bullion’s next major move. Meanwhile, a potentially bearish technical pattern by the U.S. Dollar Index suggests momentum may be getting ready to shift to the downside, which could also give gold a near-term boost.

However, today’s early price action is likely being fueled by position-squaring and adjusting ahead of Friday’s highly anticipated speech by Federal Reserve Chairman Jerome Powell at the central bankers’ symposium at Jackson Hole, Wyoming.

In my opinion, it doesn’t represent a change in trend because I don’t think anyone wants to take on a major position ahead of Powell. There is just too much uncertainty in the markets as to whether Powell will suggest going big with a super-sized 75-basis-point rate hike in September or if he backs a milder 50-basis-point move.

At 09:29 GMT, December Comex gold is trading $1764.80, up $3.60 or +0.20%. On Tuesday, the SPDR Gold Shares ETF (GLD) settled at $162.78, up $1.14 or +0.70%.

The current reading from the FedWatch Tool indicates the same assessment with the chances of a 50-basis-point rate hike coming in at 49.5% and the odds of a 75-basis-point rate hike sitting at 50.5%.

Traders just don’t know what the Fed will do on September 21, but they do have 28 days to figure it out before the Fed makes its determination of where interest rates should be. Before that, however, policymakers will have a chance to take a look at another U.S. Non-Farm Payrolls report and fresh U.S. consumer inflation data.

Traders Learn about Data Dependence

Gold traders received a little taste of what it means to be ‘data dependent’ on Tuesday, when bearish U.S. economic data fueled a strong short-covering rally, only to have gains capped by hawkish comments from a Fed official.

The fact that the chances of a 75-basis point rate hike dipped following the day’s event and gold prices are nudging higher today suggests traders are paying a little more attention to the economic news going into Powell’s speech on Friday. It also indicates that investors should brace themselves for heightened volatility.

Short-Term Outlook

Three days of short-covering in gold is not a long enough time period to signal the momentum has shifted in the market, but since Treasury yields are dipping and the U.S. Dollar is paring some of its recent gains, it does indicate investor indecision and impending volatility.

Fed Chair Jerome Powell’s speech at Jackson Hole on Friday will be closely watched for more clues on future interest rate hikes. The price action suggests that traders expect some strong guidance from Powell and hopefully, he doesn’t disappoint. Powell is going to either put a lid on the volatility with decisive remarks or contribute to the volatility by remaining on the proverbial fence.

Ahead of Powell, there is fresh U.S. economic data on Wednesday. Durable goods for July will be released at 12:30 GMT, with pending home sales for July to follow at around 14:00 GMT.