Price of Gold Fundamental Daily Forecast – GDP Report Expected to Show 0.4% Second Quarter Growth

Gold futures are edging higher on Thursday, but the buying is a little tentative as traders continue to digest yesterday’s comments from Federal Reserve Chairman Jerome Powell after the central bank lifted its benchmark interest rate 75-basis points as widely expected.

Although Powell’s comments have been described as “dovish”, I think they were less-hawkish and the subsequent rally wasn’t actually fueled by new buying, but rather short-covering by traders who had bet on a bigger rate hike and a more hawkish tone from Powell.

At 07:32 GMT, December Comex gold futures are trading $1756.50, up $19.00 or +1.09%. On Wednesday, the SPDR Gold Shares ETF (GLD) settled at $161.69, up $1.65 or +1.03%.

The lack of volatility and strong follow-through rally is also the result of a mixed-to-weaker U.S. Dollar and an overnight rise in U.S. Treasury yields.

Fed Recap

The U.S. Federal Open Market Committee (FOMC) on Wednesday voted to raise the Fed’s overnight interest rate by 75-basis points for a second straight meeting to combat red-hot inflation.

After the rate hike announcement, Fed Chairman Powell said in his press conference that another “unusually large” increase in interest rates may be appropriate at the September 21 meeting, but the decision will be determined by the incoming economic data and it would not give forward guidance.

Powell also added, “I do not think the U.S. is currently in a recession and the reason is there are too many areas of the economy that are performing too well.”

Short-Term Outlook

Later today at 12:30 GMT, investors will be looking for further clues into the state of the economy with the release of a reading on second-quarter GDP. Traders are looking for a reading of 0.4%. This is up from a first quarter loss of 1.6%.

Although gold prices are likely to be manipulated mostly by the movement in Treasury yields and the U.S. Dollar until the Fed’s next rate decision on September 21, these two markets will be controlled mostly by expectations of the next rate hike. As of Wednesday’s close, the CMEGroup’s FedWatch Tool predicts a 66% chance of a 50% rate hike and a 34% chance of a 75% rate hike.

Like Powell said in his press conference, the next move by the Fed will be data dependent. We can also say that about gold prices. We’re likely to see a few outlier moves in gold over the near-term, but the overall direction will be primarily driven by the expectations of the size of the next Fed rate hike.

Today’s GDP report could move the market if it misses on either side of 0.4%. A strong number will give the Fed more room to hike rates, which would be bearish for gold. A weaker ready could extend the short-covering rally.