Gold Price Forecast XAU/USD – Struggling for Direction Amid Rate Hike, Recession Fears

Gold futures are flat-lining on Wednesday for a second session with most of the major players reluctant to take new positions ahead of next week’s U.S. consumer inflation (CPI) data and the Federal Reserve’s monetary policy and interest rate announcements on Dec. 13 and Dec. 14, respectively.

At 09:26 GMT, February Comex gold futures are trading $1785.10, up $2.70 or +0.15%. On Tuesday, the SPDR Gold Shares ETF (GLD) settled at $164.86, up $0.47 or +0.29%.

Mixed performances in Treasury yields and the U.S. Dollar are also weighing on the movement in gold. However, the extremely light volume suggests investors would rather take to the sidelines instead of guessing the outcome of the inflation report and the Fed.

Gold traders are also facing the decision to chase gold prices higher after the market rallied close to $200 in a little more than a month, or play for a pullback into a value area like $1727.70 to $1705.20.

Finally, two major concerns have surfaced this week that have caught the attention of traders. The first deals with the Fed, and how high and how long it will raise interest rates. The second deals with the possibility of a recession in 2023. We can tie the two together if you believe the Fed can raise rates high enough to trigger a recession.

Fed Rate Hike Expectations Could Cool Gold’s Rally

Gold rallied throughout November and early December on the notion that inflation and economic growth had slowed enough to warrant a slowdown in rate hikes by the Fed. This idea was even supported by Fed Chair Jerome Powell nearly a week ago.

However, that idea hit a brick wall when a combination of red-hot jobs data and a strong performance by the services sector created concerns that the Fed would have to raise rates longer than previously anticipated.

Bank Officials Sound the Recession Alarm

Recession fears moved to the forefront this week when three major bank executives warned of recession in 2023. The news drove investors into the safe-haven U.S. dollar, which weighed on demand for dollar-denominated bullion.

The recession prediction also had some traders stating that the Fed may have to raise rates aggressively enough to cause a recession in order to slow economic growth and lower inflation.

Short-Term Outlook

Unfortunately for gold traders, the key report on consumer inflation isn’t due to come out until next Tuesday, just in time for the Fed rate hike decision on Wednesday.

For those who want to trade ahead of the CPI data, you’ll have a chance on Friday with the release of a report on producer price inflation.

Like I mentioned earlier, traders have the choice to buy momentum at current levels or play for a pullback into a value area. The current rangebound trade suggests they may have mixed feelings about what to do.