Gold Price Forecast XAU/USD – Headed for Biggest Monthly Loss Since June 2021 on Fed Rate Hike Fears

Gold futures are inching lower on Tuesday after failing to follow-through to the upside following yesterday’s potentially bullish technical reversal. The price action was likely fueled by short-covering due to oversold technical conditions because the fundamentals are still bearish especially since traders still aren’t sure where and when the Fed will stop raising interest rates.

At 06:51 GMT, April Comex gold futures are trading $1822.30, down $2.60 or -0.14%. On Monday, the SPDR Gold Shares ETF (GLD) settled at $168.97, up $0.62 or +0.37%.

Fed and Upcoming Economic Reports have Gold Traders Worried

With gold headed for its biggest monthly loss since June 2021, traders fear there is more downside risk ahead in March as impending interest rate hikes by the U.S. Federal Reserve sapped the non-yielding asset’s investment appeal.

“The question is still, ‘How much more to hawkish Fed repricing?’ …and this is highly dependent on how U.S. data turns out and, in particular, if the disinflation trend can be more entrenched than bumpy,” said OCBC FX strategist Christopher Wong.

“A pause in hawkish Fed repricing could see USD momentum ease and that can provide support to gold.” But he’s talking like a biased strategist. Sure, a weaker dollar will bring in some gold buyers because it is a dollar-denominated asset. The real question is not ‘How much more to hawkish Fed repricing?’ but what does the inflation level have to be at? Where does the unemployment rate have to be to convince the Fed to take a pause?

These are some major unknowns. And when there is uncertainty, investors tend to sell. This is why we’re looking for further downside pressure.

The market is only going as far as July with 25-basis point rate hikes coming in March, May and June. Furthermore, traders expect the Fed’s target rate to peak at 5.403% in September.

The way I see it, unless the Fed decides to go big with 50-basis point rate hikes, gold could be under pressure for another 90 to 180 days.

Even Fed Governor Phillip Jefferson sounded a little uncertain on Monday when he said he was under “no illusion” that inflation would return quickly to the Fed’s 2% target and noted that the Personal Expenditures index remained “elevated.”

Short-Term Outlook

Although there are a number of unknowns driving the uncertainty, we do know that the gold market along with the Fed will remain data dependent and that traders are still in a “sell the rally” mode.