Gold futures fell from their six-week high on Thursday, pressured by a rebound in the U.S. Dollar against a group of major currencies and solid economic data. Investors also continued to digest the Fed’s monetary policy statement while assessing the impact of its plan to begin trimming its massive debt “relatively soon” in a sign of confidence in the U.S. economy.
The U.S. Dollar turned around on the back of upbeat economic data. Initial jobless claims came in at 244,000, slightly above the 240,000 estimate and well-above the previous week’s 234,000K.
Core Durable Goods Orders rose 0.2%, below the 0.4% estimate and 0.3% previous read. Durable Goods Orders were up 6.5%, well above the 3.5% forecast and -0.8% previous read.
Additionally, Preliminary Wholesale Inventories rose 0.5%, worse than the 0.3% forecast. The previous read was revised upward to 0.4%. The Goods Trade Balance came in better than expected at -63.9 billion.
Gold is going to react to the movement in the U.S. Dollar, which will be influenced by the direction of U.S. Treasury yields. And Treasury yields are going to respond to U.S. economic data today.
With yields stabilizing as well as the U.S. Dollar, gold prices may be limited to the upside. Increased demand for higher risk assets will also weigh on gold prices.
Longer-term, gold may be capped because the Fed is expected to begin trimming its massive balance sheet in September. Because of this, the long end of the interest rate yield curve should start to rise and that could put a little bit of pressure on gold while bolstering the U.S. Dollar a little.
As of Thursday’s close, the CME Group’s FedWatch tool is saying there is about a 49 percent chance of the Fed raising interest rates in December.
On Friday, investors will get the opportunity to react to the latest quarterly Advance GDP. It is expected to show the economy grew by 2.5%, up from 1.4%. A stronger than expected number will drive up Treasury yields. Gold should decline on this news. A weaker number will be bullish for gold.
The Employment Cost Index is expected to come in at 0.6%, down from 0.8%. The Fed would like to see this number come in higher. This would also be bullish for the dollar.
Finally, Revised University of Michigan Consumer Sentiment is expected to come in at 93.2, basically unchanged from the previous month.
Late in the day, FOMC Member Kaplan is scheduled to speak.
As far as the price action is concerned, I’d look for an upside bias to develop on a sustained move over $1269.40 and for a bearish tone to develop on a sustained move under $1258.30. Holding between these levels means the outlook for gold is neutral.