Gold Price Forecast XAU/USD – Higher Rates, Strong Dollar Driving Gold Toward $1750.00

Gold futures traded lower on Friday but the damage wasn’t as bad as it could’ve been given the bearish chart pattern and bearish fundamental data. Nonetheless, the market did touch its lowest level in eight weeks while posting another weekly lower close.

Bullion was weighed on by a stronger U.S. Dollar and bond yields as investors braced for more interest rate hikes by the U.S. Federal Reserve over the next several months.

On Friday, April Comex gold futures settled at $1817.10, down $9.70 or -0.53%. The SPDR Gold Shares ETF (GLD) closed at $168.37, down $1.20 or -0.71%.

Higher Fed Rate Hike Expectations Driving the Price Action

Treasury yields and the U.S. Dollar were underpinned following the release of a report from the Commerce Department showing an unexpected acceleration in the annual rate of growth by core consumer prices, which exclude food and energy prices.

The Commerce Department’s reading on core consumer prices (PCE), which is said to be preferred by the Federal Reserve, showed the annual rate of growth accelerated 4.7 percent in January from an upwardly revised 4.6 percent in December.

Economists had expected the annual rate of growth by core consumer prices to slow to 4.3 percent from the 4.4 percent originally reported for the previous month.

Also contributing to gold’s bearish tone was a surge in consumer spending, which highlighted the resiliency of the U.S. economy. Personal spending, which accounts for more than two-thirds of U.S. economic activity, shot up 1.8% last month. That was the largest increase since March 2021. Data for December was revised higher to show spending dipping 0.1% instead of falling 0.2% as previously reported.

Looking Ahead …

The unexpected acceleration in core consumer price growth is likely to keep the pressure on gold prices as it raises concerns about the outlook for interest rates.

The data may convince the Fed that it needs to raise rates higher than currently anticipated in order to win the battle against elevated inflation.

At the end of the session, Fed funds futures traders were pricing the fed funds rate to hit a peak of 5.395% in September, and expect it to stay above 5% for the year, compared with the current target rate of 4.5-4.75%. The markets have also priced in rate hikes over the next three meetings.

This week, traders will get the opportunity to react to the latest data on durable goods, ISM Manufacturing PMI and ISM Services PMI. We expect the reports to show strength, while delivering further evidence that the economy is not weakening, which should support the Fed’s plan to continue to raise interest rates.