Price of Gold Fundamental Weekly Forecast – Powell’s Hawkish Tone Likely to Dampen Reaction to CPI Data

Gold futures finished marginally lower last week after posting a volatile two-sided trade. The selling pressure was driven by hawkish comments from Federal Reserve Chairman Jerome Powell. The market was underpinned by a drop in U.S. Treasury yields.

Despite the headlines, gold traders showed little reaction to the outbreak of the omicron coronavirus variant. Some analysts tried to push the “flight-to-safety”, but there was little evidence that investors were seeking protection in gold. Even after a steep sell-off in global equity markets.

Keep in mind that gold is an investment that pays you nothing to hold it. Because of this, it is most sensitive to the movement in Treasury yields. The movement in the U.S. Dollar also influences gold because it is a dollar-denominated asset. When investors are looking for protection, they move their money into the most liquid save-havens – U.S. Treasurys, the Japanese Yen and the U.S. Dollar.

Last week, February Comex gold settled at $1783.90, down $4.20 or -0.23%. The SPDR Gold Shares (GLD) ETF closed at $166.43, down $0.42 or -0.25%.

Powell Says Fed Will Discuss Speeding Up Bond-Buying Taper at December Meeting

Gold started the week on a high note as news of the Omicron coronavirus variant hit the market. But that early rally came to a screeching halt when Federal Reserve Chairman Jerome Powell indicated Tuesday that the central bank could step up the removal of its efforts to boost the economy as it battles escalating inflation pressures.

In an appearance before a Senate committee, the Fed chief said he thinks reducing the pace of monthly bond buys can move more quickly than the $15 billion-a-month schedule announced in early November.

Powell said he expects the issue to be discussed at the December meeting.

“At this point, the economy is very strong and inflationary pressures are higher, and it is therefore appropriate in my view to consider wrapping up the taper of our asset purchases, which we actually announced at the November meeting, perhaps a few months sooner,” he said. “I expect that we will discuss that at our upcoming meeting.”

The initial tapering schedule would have seen bond purchases wrap up around June; if the committee chooses to accelerate, that could mean a close earlier in the spring, giving the Fed leeway to raise interest rates anytime thereafter.

Weekly Outlook

It’s going to be hard to find a reason for gold prices to rally considerably this week given the hawkish tone of Fed Chairman Jerome Powell. However, since the Fed doesn’t meet until December 14-15, we could see some upside action, but this is only likely to set up the next shorting opportunity.

The key report this week is Friday’s Consumer Inflation (CPI) and Core CPI reports. However, given that Powell and other Fed policymakers are leaning toward tighter policy, it really shouldn’t matter what the reading shows.

Similarly, last Friday’s U.S. Non-Farm Payrolls report offered mixed results with a headline miss and a lower unemployment rate. The disappointing jobs growth shouldn’t stop the Fed from moving forward with its plans to increase tapering because the drop in the unemployment rate to a 21-month low indicates a tight labor market.

Omicron is a wildcard but U.S. health officials said Sunday that while the coronavirus variant is rapidly spreading throughout the country, early indications suggest it may be less dangerous than delta, which continues to drive a surge of hospitalizations.