Gold Price Forecast XAU/USD – Powell’s Comments Likely to Set Near-Term Tone

Gold futures are edging higher on Wednesday but still rangebound for the week as investors monitor the movement in U.S. Treasury yields and the U.S. Dollar ahead of a key speech by Federal Reserve Chair Jerome Powell later this afternoon. Investors are hoping for further insights into the U.S. central bank’s monetary policy path.

Earlier in the week, gains were capped by hawkish comments from a pair of Federal Reserve members. Both said they favor raising the Fed’s benchmark rate to roughly 5% or more and keeping it at its peak through next year – longer than many on Wall Street had expected.

At 07:54 GMT, February Comex gold futures are trading $1768.60, up $4.90 or +0.28%. On Tuesday, the SPDR Gold Shares ETF (GLD) settled at $162.74, up $0.81 or +0.50%.

Bullard Sees Fed Remaining Aggressive

St. Louis Federal Reserve President James Bullard on Monday suggested that the financial markets are underestimating the likelihood the Fed will have to be more aggressive in its fight against inflation.

In an interview with Marketwatch, Bullard suggested that the speed of the Fed’s rate hikes isn’t as important as the ultimate level of its benchmark rate, which he said could exceed the 5% level that financial markets have priced in.

The central bank, he added, will likely have to keep its benchmark rate above 5% throughout 2023 and into 2024. He also reiterated his view that the Fed should be prepared to raise that rate to the “lower end” of a range between 5% and 7%.

Fed’s Williams Sees Need for Somewhat Higher Path for Interest Rates

New York Federal Reserve President John Williams suggested that there are some positive signs that inflation is easing, but he has an issue with the job market remaining stronger than he expected.

“That argues that we’ll need to have a somewhat higher path for interest rates” than the Fed projected in September, Williams said. At that time, the officials forecast that their benchmark rate would reach a range of 4.5% to 4.75% by early next year.

Short-Term Outlook

The price action in the gold market over the last week suggests investors are waiting for the next catalyst to drive the price action. This follows a rally into a multi-month high that was fueled by speculation the Fed will lower its December rate hike from 75 basis points to 50 basis points.

That catalyst could be Federal Reserve Chair Jerome Powell who is scheduled to deliver a speech at a Brookings institution event, scheduled for 18:30 GMT. His comments will be evaluated for any new clues on the Fed’s plans for rate hikes next year.

The ADP National Employment report at 13:15 GMT will also be watched closely, but Powell’s remarks are likely to be the main market driver.

If Powell maintains his hawkish stance, yields and the U.S. Dollar will rise, putting pressure on gold prices. If Powell wavers from his usual hawkish demeanor, gold prices could breakout over $1778.50 with $1804.30 – $1806.00 the next objective.