Price of Gold Fundamental Daily Forecast – Weaker as Chances of 50bp Fed Rate Cut Fade

Gold futures are trading lower on Thursday shortly before the regular session opening. Just days after hitting a multi-year high, the market is trading only $5.00 higher for the week and in a position to turn lower if the current downside momentum continues. The selling is being fueled by rising U.S. Treasury yields, a stronger U.S. Dollar and increasing demand for higher risk assets.

At 09:18 GMT, August Comex gold is trading $1405.50, down $9.80 or -0.69%.

Bullish Scenario

Investors piled into gold in the days following the somewhat dovish tone by the Federal Reserve in its monetary policy statement, “dot plots” and post-meeting comments on June 18. The aggressive buying spree sent the precious metal to a six-year high on June 25, while putting it on pace to finish the month about 9% higher.

The primary driver of the rally was a steep plunge in U.S. Treasury yields as investors priced in a 100% chance of a Fed rate cut at its July meeting. This drove the U.S. Dollar Index to a 3-month low, which increased foreign demand for dollar-denominated gold.

Trader said the catalysts behind the moves were comments from Fed Chair Jerome Powell after the central bank meeting. Powell said policymakers would “act as appropriate” to keep the current economic expansion going. He also said members were open to becoming more accommodative. They comments were construed as dovish, increasing the odds of the Fed cutting rates in July.

However, Powell nor the Fed ever said explicitly that it was preparing to cut rates. It never even told investors what criteria policymakers would use to determine whether a rate cut was needed.

Bearish Scenario

The rally began to cool on Tuesday after Fed members signaled the central bank would not make too steep a rate cut to interest rates next month. Fed Chair Powell said on Tuesday the central bank is “insulated from short-term political pressures” as policymakers contemplate monetary easing.

While Powell stressed the Fed’s independence from U.S. President Donald Trump, who is pushing for rate cuts, St. Louis Fed President James Bullard, considered one of the most dovish U.S. central bankers, surprised some investors by saying a 50 basis point cut in rates “would be overdone.”

After the comments were made, the CME Group’s FedWatch indicator showed federal funds futures implied that traders now see a 27% chance of the Fed lowering rates by 50 basis points in July, compared to 42% on Monday. The chances of a quarter percentage point cut in July is still at 100%.

Daily Forecast

The run-up in gold prices was a little excessive to some, but not to those looking for a 50 basis point rate cut. However, if the cut is now going to be only 25 basis points then Treasury investors, U.S. Dollar investors and most importantly, gold investors have to make adjustments to reflect the change in the forecast.

Short-term gold traders have been looking for an excuse to book profits and Tuesday’s Fed comments may have opened the door to this opportunity. We’re looking for gold to weaken until it finds a value area, or a spot on the charts that encourages bullish traders to refresh their positions.

However, we will continue to reserve judgment on the longer-term direction of gold prices until we see some of the upcoming U.S. economic data, especially the Core PCE Price Index data on Friday and next week’s Non-Farm Payrolls report on July 5.

If both reports come in better-than-expected then the Fed may even put a July rate cut on hold and this would be bearish for gold prices.