Gold Price Forecast XAU/USD – Bullish Traders Betting on Less-Aggressive Rate Hikes Ahead of Fed Minutes

Gold futures are up sharply for a second session after hitting their highest level since mid-June on Wednesday. The move is being fueled by lower Treasury yields and a weaker U.S. Dollar. The price action suggests investors are betting on less aggressive interest rate hikes at upcoming Federal Reserve meetings.

At 13:50 GMT, February Comex gold futures are trading $1867.50, up $21.40 or +1.16%. On Tuesday, the SPDR Gold Shares ETF (GLD) settled at $171.04, up $1.40 or +0.82%.

If you recall, lower Treasury yields tend to underpin non-yielding gold, while a weaker U.S. Dollar tends to make gold less-expensive to foreign buyers.

10-Year Treasury Yield Falls as Investors Await Fed Meeting Minutes, Key Economic Data

Gold futures rose as U.S. Treasury yields slipped on Wednesday as investors awaited the release of the Federal Reserve’s December meeting minutes, which could provide hints about the central bank’s monetary policy plans.

The yield on the 10-year Treasury is currently down by 10 basis points at 3.692%. The 2-year Treasury yield had fallen by 7 basis points and was trading at 4.335%.

US Dollar Falls as Europe Inflation Cools and China Lifts the Aussie

Lower Treasury yields are weighing on demand for the U.S. Dollar on Wednesday as well as the stronger Euro, which got a lift from a slew of economic data that indicated European inflation may finally have peaked.

The dollar was already under pressure from investors who have grown more optimistic over the prospect that China’s relaxation of tough COVID restrictions will lift the world’s second largest economy from near recession-like conditions.

The standout performer in the currency markets on Wednesday is the Australian Dollar. It is up more than 2.3% against the U.S. Dollar on a combination of optimism over China and following media reports that the Chinese government is discussing a possible removal of a ban on the country’s coal imports – a major Australian export.

Daily Forecast

Today’s bullish price action suggests investors are looking for the Fed minutes to reveal a softer or more dovish tone from the U.S. central bank.

The minutes from the last meeting, at which the Fed raised rates by 50 basis points after four consecutive 75 basis point hikes, due at 19:00 GMT. Today’s early strength in gold could mean that traders are betting Fed policymakers discussed the possibility of a series of 25 basis point rate hikes at the next Fed meeting on January 31 – February 1. This is down from the recent consensus of 50 basis points.

Additionally, ahead of the Fed minutes, gold traders will get the opportunity to react to data on U.S. job openings and ISM manufacturing. The results of both reports are expected to reveal key information about the health of the U.S. economy. This will be used by the Fed in making its next rate decision.