Gold Price Forecast XAU/USD – Powell Likely to Emphasize Fed is Data Dependent

Gold futures are edging lower on Tuesday as investors position themselves ahead of the crucial testimony by Federal Reserve Chairman Jerome Powell later today. Traders hope Powell offers fresh comments on the outlook for the economy and monetary policy. Bullion is edging lower despite a dip in Treasury yields and a firmer U.S. Dollar.

At 10:19 GMT, April Comex gold futures are trading at $1848.20, down $6.40 or -0.35%.On Monday, the SPDR Gold Shares ETF settled at $171.67, down $0.82 or -0.47%.

Two events will likely determine the direction of gold prices this week:  Powell’s testimony on Tuesday and Wednesday and Friday’s U.S. Non-Farm Payrolls report.

Powell Could Move the Gold Market by Influencing Treasury Yields

Federal Reserve Chairman Jerome Powell could indirectly influence the gold market on Tuesday by moving Treasury yields and the U.S. Dollar. Traders will pay close attention to the 10-year U.S. Treasury Note yield and its psychological 4% level.

Hawkish comments from Powell could send the 10-year Treasury note yield back over the 4% level. This would be bearish for gold prices. Since gold pays no interest to hold it, rising yields drive up the opportunity cost of holding it as an investment.

Dovish remarks from Powell could spike prices higher.

Dollar and Gold Investors Will Be Listening for Clues from Powell on Interest Rates

Powell’s remarks are also expected to set the tone for the U.S. Dollar. Hawkish comments calling for higher interest rates for longer than previously anticipated could spike the dollar higher. This would put pressure on gold since it is a dollar-denominated asset. A stronger greenback makes gold more expensive for foreigners, leading to lower demand.

Short-Term Outlook for Gold

The Fed has been implementing policy measures, including eight consecutive interest rate hikes since March 2022, as it fights to cool the economy and ease inflation.

Concerns about the pace of rate increases dragging the U.S. economy into a recession have spread among investors and prompted many to hope for the Fed to pause rate hikes this year.

In recent weeks, Fed officials have hinted that rates could go higher still and remain elevated for longer. That comes as the latest round of inflation data suggested that pressures from rising prices are continuing.

Powell is due to give testimony before Congress that could clarify the state of the economy and ease some of the worries about aggressive Fed rate hikes.

From Powell’s comments, investors are expecting fresh insights into the central bank’s expectations for inflation and its monetary policy path.

They will be disappointed if Powell fails to provide clarity, which could be bearish for gold prices.