Price of Gold Fundamental Daily Forecast – Headline CPI Expected to Dip, Core CPI Predicted to Rise

Gold futures are inching lower while posting a second straight inside move on Tuesday. The price action suggests investor indecision and impending volatility ahead of Wednesday’s key U.S. consumer inflation report that could offer investors more clarity on the Federal Reserve’s rate-hike plans starting with its September 21 policy meeting.

At 06:31 GMT, December Comex gold futures are trading $1801.50, down $3.70 or -0.20%. On Monday, the SPDR Gold Shares ETF (GLD) settled at $166.69, up $1.40 or +0.85%.

Briefly, prices recovered on Monday following a sharp break the previous session as Treasury yields dipped and the U.S. Dollar drifted lower. Looking ahead, traders are preparing for Wednesday’s U.S. Consumer Price Index (CPI) report, which is expected to show annual inflation eased in July.

Helping to hold prices in a range was data suggesting Fed funds futures traders are now pricing for a 64.5% chance of another 75 basis-point rate hike at the next central bank meeting.

Treasurys Flat with Wednesday’s Inflation Data in Focus

U.S. Treasury yields are unchanged early Tuesday as investors continued to digest an unexpectedly strong job report from Friday and before highly anticipated inflation data on Wednesday, which will be scrutinized for how aggressively the Federal Reserve is likely to continue interest rate hikes.

Yields have risen off four-month lows reached last week as persistently high inflation, hawkish comments from Fed officials and a strong labor market dampen expectations that the U.S. central bank will take its foot off the pedal to dampen soaring price pressures.

US Consumers’ Inflation Outlooks Drop Sharply, New York Fed Survey Shows

U.S. consumers’ expectations for where inflation will be in a year and three years dropped sharply in July, a New York Federal Reserve survey showed on Monday, indicating U.S. central bankers are winning the fight to keep the outlook for price growth well-anchored as they battle to tame high inflation.

Median expectations for where inflation will be in one year tumbled 0.6 percentage points to 6.2% and the three-year outlook fell 0.4 percentage points to 3.2%, the lowest levels since February of this year and April of last year, respectively.

Daily Forecast

Fed officials have identified that the possibility of another 75 basis-point rate hike will depend on inflation, employment, consumer and economic growth data between now and their next policy meeting on September 20-21.

Additionally, the results from the New York Fed survey indicates conditions are improving but Wednesday’s report is still expected to show little relief from inflation.

The Labor Department’s Consumer Price Index for July is expected to show headline prices rose by 8.7% from a year earlier, a slight decline from the prior month but still too high to stop aggressive rate hikes.

Furthermore, the Core CPI, which strips out volatility from energy and food prices, however, is forecast to accelerate to 6.1% on an annual basis, compared to 5.9% in June.

All we can predict for gold at this time is heightened volatility because after the CPI numbers are released, rate hike expectations are either going to jump from between 75 to 100 basis points, or fall from 75 to 50 basis points. 75 basis points is our median expectation.

The first case will sink gold prices. The second could provide support.