Price of Gold Fundamental Daily Forecast – Needs Dovish to Resume Short-Covering Rally

Gold prices are being pressured on Wednesday by increased demand for higher risk assets, and position-squaring ahead of today’s U.S. Federal Reserve interest rate and monetary policy decisions. Given the muted inflation and relatively low interest rates, there isn’t much demand for gold as a hedge against stock market volatility.

At 07:50 GMT, June Comex gold futures are trading $1282.10, down $3.60 or -0.28%.

On Tuesday, gold prices were supported early by weaker-than-expected economic news from China, but these gains were erased by strong growth data from the Euro Zone. A weaker U.S. Dollar and a dip in Treasury yields also failed to generate support for the precious metal.

Daily Forecast

All eyes will be on the Fed today at 18:00 GMT when it releases its new policy statement and interest rate decision. A dovish Fed could be supportive for gold, but only if the news drives Treasury yields sharply lower. It’s not what the Fed says that drives gold prices, but rather how it affects interest rates.

The central bank is widely expected to keep its benchmark interest rate unchanged, but investors will be looking at its policy statements for hints of new policy moves and clues about where Fed policymakers think the economy is headed.

The biggest concern for policymakers is how to address the weak inflation and the tight labor market.

“Many at the Fed seem to be perplexed (and a bit concerned) by the perceived disappearance of the trade-offs between unemployment and inflation,” wrote William Delwiche, investment strategist at Baird. “The recent drop in core inflation rates (as measured by both the CPI and PCE) seems to confirm those concerns and fits a narrative that inflation pressures are easing.”

Ahead of the Fed, expectations for a rate cut at this meeting are just at 4%, according to the CME Group’s FedWatch tool. However, traders have fully-priced in lower overnight rates by October, FedWatch shows.

At its last meeting, Fed policymakers signaled there would be no rate hikes for the remainder of 2019 in light of global economic and financial developments, as well as muted inflation. This meeting may not offer much for investors.

“It’s going to be a little bit more non-event this time, as we sort of get used to what the more-patient Fed is going to look like here,” Michael Reynolds, the investment strategy officer at Glenmede, told FOX Business.

Don’t read too much into the Fed’s decision today, but watch the Treasurys. Weaker yields should be friendly for gold prices. Gold could get crushed if the Fed turns unexpectedly hawkish.