Gold Price Forecast XAU/USD – Bulls Hope Powell Provides Clues on Fed’s End Rate

Gold futures are edging higher on Monday as U.S. Treasury yields continued to weaken, dragging down the U.S. Dollar. Gold strengthens when rates dip because it lowers the carry cost of holding the non-yielding asset. A weaker greenback also tends to drive up foreign demand for bullion because it is a dollar-denominated asset.

At 08:30 GMT, April Comex gold futures are trading at $1859.70, up $5.10 or +0.27%. On Friday, the SPDR Gold Shares ETF (GLD) settled at $172.49, up $1.83 or +1.07%.

Gold prices are hovering just below a two-week high reached on Friday as the market posted its first weekly gain in five as a pullback in yields and the dollar offered some respite from prospects of more rate hikes from the Federal Reserve.

Last week, traders also reacted to conflicting comments from Fed officials, adding to the volatility. On the bearish side, Fed Governor Christopher Waller said solid economic data could see rates above the 5.1%-5.4% range. In contrast, Atlanta Fed President Raphael Bostic favored a “slow and steady” increase moving forward and a pause by mid or late summer.

Traders are now pricing in at least three more 25 basis point rate hikes this year, with rates peaking at 5.43% by September.

Gold Traders Eyeing 10-year 4% Yield

The source of volatility in the gold market last week was the yield on the benchmark 10-year Treasury note. It zig-zagged back and forth over the 4% level throughout the week before settling at 3.969% on Friday.

Traders have been watching 4% as the critical level on the 10-year that could trigger another down move in gold. At times last week, when the 10-year rate rose above that point, gold retreated. The yield also strongly influences the direction of the U.S. Dollar.

Short-Term Outlook

Many gold investors had been hoping for the central bank to pause rate hikes this year, fearing that elevated rates could cause the U.S. economy to contract. Traders hope Fed Chair Jerome Powell addresses this issue in his congressional testimony Tuesday and Wednesday. Traders also look forward to his remarks on how the central bank thinks about inflation and its rate-hiking campaign.

Monday’s factory orders data will be released at 15:00 GMT. According to consensus estimates from Dow Jones, it is expected to show a decline of 1.8% in January. That’s compared to a 1.8% gain in the prior reading.

A lower reading could help gold prices since it will lower the chances of a 50-basis point rate hike by the Fed later this month.

On Friday, the key report will be U.S. Non-Farm Payrolls.