Price of Gold Fundamental Weekly Forecast – Rangebound Until Traders Get Guidance from CPI Data, Fed Meeting

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Last week, August Comex gold settled at $1889.80, down $15.50 or -0.81%.

The price action also demonstrated how sensitive the gold market is to possible changes in U.S. monetary policy. This type of volatile trading could continue until the Federal Reserve releases its next monetary policy statement on June 16.

Basically, gold investors are looking for guidance from the Fed. Both initial claims and non-farm payrolls reports showed the U.S. labor market improving. This may help cap gains in gold. However, the slower than expected pace of the recovery in the jobs market may be enough to underpin gold prices. Furthermore, nearly all of the recent Fed speakers continued to reiterate that the economic recovery is still too uneven to warrant any major changes in monetary policy at this time.

That being said, gold may sit in a range over the near-term until traders get more guidance from the Fed on June 16. However, even before the meeting, the U.S. Consumer Inflation report on Thursday could set the tone.

On Thursday, June 10, gold traders will get the opportunity to react to the latest CPI and Core CPI reports. CPI for May is expected to have risen by 0.4%, down from 0.8% in April. Core CPI is expected to have risen by 0.4%, down from 0.9% in April.

Weekly Outlook

No matter how one looks at Friday’s jobs report, the number was still much better than April’s dismal results. This may be enough to cap gains in the gold market this week. However, the jobless rate at 5.8% is still a long way from the Fed’s mandated 5% level. This may be enough to provide support.

The “not too hot, not too cold” report is probably enough to hold prices in a trading range. Meanwhile, Thursday’s CPI data could be the tie breaker, at least until the Fed makes its monetary policy announcement on June 16.

The meeting is important because Fed policymakers will be able to take into consider the Non-Farm Payrolls report and the U.S. consumer inflation report when coming to their conclusion.

We already know the jobs number suggests a slow, steady recovery in the labor market, but we don’t know the inflation number. The CPI is going to have to come in close to the estimates of 0.4% in order for the Fed to continue to argue the spike in inflation is still transitory.

A much higher reading could convince some policymakers to go against the “transitory” argument and argue for an early tapering for the start of 2022 and a rate hike in 2024.

So the decision for gold traders this week is likely to be based on the CPI numbers, and what impact traders believe the number will have on Fed policymakers at the next meeting on June 16.