Gold Price Forecast XAU/USD – Rate Hike Fears Capping Gains, Recession Worries Limiting Losses

Gold futures are drifting lower on Thursday after failing to follow-through to the upside, following yesterday’s strong performance. The price action suggests investors are waiting for a catalyst before deciding whether to chase the market higher or play for a pullback into support.

At 11:45 GMT, February Comex gold futures are trading $1796.40, down $1.60 or -0.09%. On Wednesday, the SPDR Gold Shares ETF (GLD) settled at $166.34, up $1.50 or +0.91%.

Potential Catalysts Include Labor, Inflation and Sentiment Data

Traders will be looking at today’s U.S. Weekly Jobless Claims report for clues about the strength of the economy. The report is due to be released at 13:30 GMT. Unemployment Claims are expected to come in at 230K, slightly higher than last week’s reading of 225K.

An increase of 5K will not be enough to convince the market or the Federal Reserve that the labor market is weakening. We’re not expecting a notable rally in gold unless there is a big miss to the upside.

On Friday, investors will get the opportunity to react to the U.S. Producer Price Index (PPI), the Preliminary University of Michigan Consumer Sentiment and the Preliminary University of Michigan Inflation Expectations reports.

PPI is expected to rise 0.2% for the month. Core PPI is expected to also come in at 0.2%. Bullish traders want to see more evidence that inflation is cooling. The same goes for the UoM Inflation Expectations report.

UoM Consumer Sentiment is expected to hold steady at 56.8.

The major report is next Tuesday’s Consumer Price Index (CPI). This is followed by the start of the Federal Reserve’s 2-day meeting.

Short-Term Outlook

The markets are likely to face confusing times over the next few days. On one hand, the Fed is expected to raise interest rates by 50 basis points on Dec. 14. This is being interpreted as good news because it’s lower than the 75 basis point increases the Fed delivered at four consecutive meetings.

However, economic data released on Friday and Monday suggest the economy is still growing. While the market still believes in a 50 basis point rate hike, it is also predicting that the Fed will have to raise rates higher and for longer than previously expected. This is potentially bearish news for gold.

But now investors believe the Fed could go too far and trigger a recession. This could cause the Fed to pause its rate hikes, which would be a bullish development for gold.

These issues are not likely to be worked out until the Fed makes its rate hike decision and issues its policy statement next Wednesday. Until then, we’re expecting a choppy, two-sided trade.