Price of Gold Fundamental Daily Forecast – Reaction to UofM Consumer Confidence Report Sets the Tone

James Hyerczyk
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Gold futures are edging slightly higher on Friday after clawing back an earlier loss. Nonetheless, the market still has a lot of ground to recapture before turning higher for the week.

Gains are being capped by worries over major central banks potentially hitting their respective economies with huge interest rate hikes to rein in runaway inflation. At the same time, however, bullion is receiving some support from plunging Treasury yields amid worries over a U.S. recession.

The wildcard appears to be the U.S. Dollar. While lower yields tend to pressure demand for the dollar and boost interest in gold, this is not the case when investors are seeking safe-haven protection in the greenback.

At 08:28 GMT, August Comex gold is trading $1827.20, down $2.60 or -0.14%. On Thursday, the SPDR Gold Shares ETF (GLD) settled at $170.28, down $1.03 or -0.60%.

Price Rises Capped by Rate Hike Fears

August Comex gold futures are trading nearly 1% lower for the week as fears of aggressive rate hikes by the major central banks weigh on demand for non-yielding bullion. This became more apparent following the testimony of Fed Chair Jerome Powell on Wednesday and Thursday.

The U.S. Federal Reserve’s commitment to reining in 40-year high inflation is “unconditional,” its chair Jerome Powell told lawmakers, even as he acknowledged that sharply higher interest rates may push up unemployment.

So his message was rates are going up (bearish for gold), but higher rates could damage the labor market (potentially bullish for gold). This is helping to drive the current sideways-to-lower trend.

Prices Can’t Appreciate Until Dollar Weakens

The prospect for higher rates and some safe-haven buying is helping to hold the U.S. Dollar Index just under last week’s more than 20-year high at 105.475. This week’s mostly sideways trade in the index is being attributed to a drop in yields in the United States and similar weakness in yields around the world.

This suggests traders are buying bonds for protection against an economic downturn. It also indicates that investors are dampening expectations for an aggressive series of rate hikes.

Daily Forecast

We could see a volatile reaction to today’s release of the University of Michigan’s Consumer Confidence report at 14:00 GMT. Ahead of the report, traders are pricing in a reading of 50.2.

A reading under 50.0 could help support the case for recession. In a perfect world, yields would plunge as well as the U.S. Dollar. This would then trigger an upside breakout in gold.

Put we’re not in a perfect world, so gold traders can’t just watch the headline. They have to actually see yields and the dollar fall before gold will rally. A mixed reaction by yields and the dollar, will likely mean more sideways trading in gold.

Fundamentally speaking, the consumer sentiment reading could be particularly important for investors, as Federal Reserve Chair Jerome Powell said that a surprise drop in the preliminary reading was one of the reasons the central bank hiked its benchmark interest rate by three-quarters of a percentage point earlier this month.

This time, a low reading won’t be a surprise and may give the Fed notice to slow down the rate hikes. It all depends on what economists are saying is driving weak consumer sentiment. Is it inflation? Or higher interest rates?

For a look at all of today’s economic events, check out our economic calendar.

This article was originally posted on FX Empire

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