Gold Price Forecast XAU/USD – Lower as Yields Inch Up Ahead of Key US Economic Data, Fed Minutes

Gold futures are edging lower on Tuesday amid firm Treasury yields and a stronger U.S. Dollar. Demand for gold tends to weaken when yields rise because bullion doesn’t pay interest or a dividend. A strong greenback also tends to reduce demand from foreign buyers for the dollar-denominated asset.

At 09:22 GMT, April Comex gold is trading $1841.50, down $8.80 or -0.48% and XAU/USD is at $1832.94, down $8.925 or -0.48%. Last Friday, the SPDR Gold Shares ETF (GLD) settled at $171.28, up $0.53 or +0.31%. The ETF market was closed on Monday due to a U.S. holiday.

Later today at 14:45 GMT, traders will get the opportunity to react to the latest data on US Flash Manufacturing and Flash Services PMI.

However, we believe the reaction by traders to these reports will be limited as traders await the minutes of the Fed’s latest policy meeting due to be released on Wednesday.

Traders will be focused on the minutes because they may offer more clarity on the outlook for inflation and the pace of Fed interest-rate increases going forward.

Traders Hoping for Direction from Wednesday’s Fed Minutes

At its Jan. 31-Feb. 1 policy meeting, the Fed opted to moderate the pace of what had been a torrid barrage of rate hikes and lifted its benchmark overnight interest rate by a quarter of a percentage point to 4.50%-4.75% range. The central bank also signaled more rate hikes are coming to help lower overly high inflation levels back to the 2% target.

Since the meeting, reports have shown unexpectedly strong job gains for January, consumer inflation that did not moderate as much as economists had forecast and surprisingly strong retail sales.

Given those results and the hawkish remarks from several Fed speakers, futures markets are now eyeing another quarter-percentage-point increase on March 22 and are split as to whether the federal funds rate will hit the 5.00%-5.25% or 5.25%-5.50% range by June.

This large jump in the federal funds rate has been putting pressure on gold all month.

Treasury Yields Rise as Investors Look to Key Economic Data, Fed Minutes

U.S. Treasury yields climbed on Tuesday as bond markets reopened after Presidents’ Day on Monday and investors awaited key economic reports due this week.

On Tuesday, in addition to the PMI data, existing home sales figures for January are expected. The Fed minutes will be on tap on Wednesday. This is followed by GDP on Thursday and the personal consumption expenditures (PCE) index on Friday, which is one of the Fed’s favored inflation gauges.

Short-Term Outlook

Looking ahead to the Fed minutes, now that Fed members Mester and Bullard have said they would have raised rates by 50 basis points earlier in the month, gold traders are going to be watching the minutes to see if any other members felt the same way.

This would support the case for a 50 basis point rate hike in March, which would be bearish for gold prices.