Price of Gold Fundamental Daily Forecast – With Fed Decision, Buyers Facing “Buy Rumor, Sell Fact” Situation

Gold prices hit their highest level since June 15 on Wednesday, underpinned by expectations of a dovish U.S. Federal Reserve and uncertainty over the outcome of the high-level trade talks between the United States and China. Another theme driving prices higher is the global economic slowdown. This theme moves hand in hand with the trade talk discussions so let’s call this the most important event of the week.

At 09:54 GMT, April Comex gold futures are trading $1318.70, up $3.50 or +0.26%.

Global Economic Slowdown

Gold has been supported since China announced weak GDP data for 2018 and the International Monetary Fund (IMF) lowered its economic forecasts for 2019 and 2020 last week. It was further helped by dovish assessments from the Bank of Japan and the European Central Bank. Now traders are waiting for the Fed to acknowledge the same weakness by coming across as dovish at today’s interest rate decision, monetary policy announcement and Fed Chair Jerome Powell’s press conference.

Fed Expected to Come Across as Dovish, but Powell Will Soften Tone

At 19:00 GMT, the U.S. Federal Reserve will end its 2-day meeting with its interest rate decision and monetary policy statement, followed by a press briefing by Chairman Jerome Powell.

The Fed is widely expected to leave its benchmark interest rate unchanged. Although the expected moves by the central bank are going to be perceived as dovish, Federal Reserve Chairman Jerome Powell is expected to tone down his comments to avoid fueling a volatile response by equity traders.

Investors are looking for the Fed to direct remarks toward the balance sheet, patience and data dependence.

U.S.-China Trade Talks Could Be Source of Volatility

Since the Fed has been telegraphing its outlook for some time, the source of volatility for gold traders will be the trade talks. This is because no one is certain of the outcome, although there is some optimism ahead of the meeting.

The meetings are expected to start with a ray of optimism after U.S. Treasury Secretary Steven Mnuchin said that if China presents enough trade concessions to President Trump, there’s a chance the administration may lift all tariffs.

“Everything is on the table,” Mnuchin said early Tuesday during an interview on Fox Business Network.

The two day meetings are taking on added importance because they may be the last before a March 1 deadline to get the deal done. President Trump and China’s Xi Jinping gave their officials until March 1 to work out a deal on “structural changes” to China’s economic model. If they fail, Trump has promised to raise the tariff rate on $200 billion in Chinese imports to 25 percent from 10 percent.

Forecast

The strong rally in gold since Friday leads us to believe we could be looking for at a “buy the rumor, sell the fact” situation. In other words, since the market seems to be pricing in a dovish Fed, gold prices could break once the decisions are announced and Powell completes his press conference.

The key to the movement will be Powell. He has to tone down his remarks in order to avoid triggering a volatile reaction in the financial markets. Gold could weaken if Powell comes across as too hawkish. Especially if his comments drive stock prices down sharply while increasing demand for the safe-haven U.S. Dollar.

Any dovish talk that drives interest rates lower and makes the dollar a less-attractive asset is likely to be supportive for gold prices.