Price of Gold Fundamental Daily Forecast – Showing Increased Sensitivity to Economic Data
Gold futures are up slightly early Tuesday, boosted by a dip in U.S. Treasury yields and a weaker U.S. Dollar. Traders are trying to recover some of the steep losses from last Friday, but face an uphill battle as central banks move toward easing economic stimulus.
At 12:32 GMT, December Comex gold futures are trading $1781.30, up $15.10 or +0.84%.
Heightened Volatility New Theme
Heightened volatility is going to be the theme over the near-term as gold traders are likely to be locked in on U.S. economic data, Fed speakers, Fed policy as well as global central bank policies. The recent price action suggests concerns over rising inflation could be downplayed as central bank policymakers move to take action to stem its rapid rise.
With the market already fully pricing the start of Fed tapering in November and its first interest rate hike in mid-2022, gold as well as yields and the U.S. Dollar are likely to become more sensitive to fresh economic data as investors try to gauge the pace of tapering and future rate hikes.
We saw what the stronger-than-expected U.S. retail sales report did to gold prices on Friday. And we’re seeing a little support from Monday’s release of a report showing weaker-than-expected U.S. factory output which helped slow down the selling and may be carrying over to Tuesday’s early trade.
Pace of Tapering the Issue
The point is, tapering and the first Fed rate hike are no longer the issue. They are now a given, which leads me to believe that the pace of the Fed’s tapering plans and the speed at which the Fed will raise rates are the new worries.
The action of the central banks has probably put a lid a prices, which means traders are going to be in “sell the rally” mode. We could see some technically driven “blips” to the upside like we saw last week when aggressive buyers caught weak shorts off-guard, triggering a short-covering rally into $1800.00, but those are necessary to alleviate some of the downside pressure.
Besides most professional hedge fund and money managers prefer to sell rallies than new lows unless they absolutely have to due to economic conditions. Right now there is no urgency to pound gold prices lower.
If the central banks feel that rates should rise gradually then gold prices are likely to decline at a similar pace. There’s no hurry. Furthermore, we’re also likely to see some stops and starts in economic growth while the central bankers are making their adjustments. This could trigger a few volatile adjustments to risky assets. This could generate some interest from gold buyers but not enough to change the major trend which is pointing down.
For a look at all of today’s economic events, check out our economic calendar.
This article was originally posted on FX Empire
