Gold Price Forecast XAU/USD – Lower as Traders Brace for Potentially Bearish Core PCE Inflation Data

Gold futures are nearly flat on Friday as investors prepare for a number of key U.S. economic reports that could solidify the chances of at three more 25-basis point rate hikes by the Federal Reserve by June and may even put a 50-basis point rate hike back on the table for March.

At 11:30 GMT, April Comex gold is trading $1825.00, down $1.80 or -0.10%. On Thursday, the SPDR Gold Shares ETF (GLD) settled at $169.57, down $0.09 or -0.05%.

Gold is likely headed for another weekly decline while in a position to test a two-month low as prospects of more interest rate hikes by the Fed dampened bullion’s appeal amid a slew of strong economic data.

Bearish Factor #1:  Hawkish Fed Minutes

Gold prices fell on Wednesday as the dollar rose after minutes from the U.S. Federal Reserve’s latest policy meeting showed policymakers backed more interest rate hikes to tame inflation.

After the minutes were released, Fed funds traders largely stuck to the view the central bank will keep hiking a quarter of a point at its next three meetings.

Essentially, the minutes supported the idea that the Fed could stay hawkish a little while longer and could continue to hit the market with a series of smaller rate hikes. This would keep the upward pressure on Treasury yields, while weighing on gold prices.

Gold is highly sensitive to rising U.S. interest rates, as they increase the opportunity cost of holding non-yielding bullion.

Bearish Factor #2:  Higher Yields equals Higher U.S. Dollar

Yields rose sharply after the Fed minutes said ‘Almost all’ Fed officials backed quarter-percentage-point hikes and noted the risks of high inflation remained a “key factor” sharping monetary policy and warranted continued rate hikes.

Rising yields also made the U.S. Dollar a more attractive investment while driving the currency to its highest level since January 6.

A stronger greenback tends to weigh on foreign demand for dollar-denominated bullion.

Short-Term Outlook

Like the Fed’s next major rate decision in March, the next significant move in gold is likely to be data dependent.

On Thursday, gold was pressured by data that showed U.S. GDP increased at a revised 2.7% annualized rate last quarter, while new claims for unemployment benefits unexpectedly fell last week.

Recent economic data out of the United States points to a resilient economy, giving more ammunition to central banks to raise rates. This assessment could be reaffirmed later today at 13:30 GMT with the release of a few key U.S. reports including:  Core PCE Price Index, Personal Income, and Personal Spending. These reports will be followed at 15:00 GMT by the University of Michigan’s Consumer Sentiment and inflation Expectations reports.

Strong economic data will support the Fed’s three planned rate hikes and could even encourage policymakers to raise rates by 50 basis point in March if necessary.