Gold Price Forecast XAU/USD – Traders Bracing for Higher Headline, Core US Consumer Inflation

Gold futures are inching higher after reversing earlier losses on Monday, helping to cap gains is a firmer U.S. Dollar as cautious traders squared positions ahead of Tuesday’s U.S. consumer inflation (CPI) report that could influence the Federal Reserve’s future interest rate decisions.

At 06:49 GMT, April Comex gold is trading $1875.20, up $0.07 or +0.04%. This is up from an intraday low of $1867.80. On Friday, the SPDR Gold Shares ETF (GLD) settled at $173.38, up $0.35 or +0.20%.

Traders Eyeing Treasury Yields, US Dollar

Today’s price action is mirroring the movement in Treasurys and the U.S. Dollar. Both are straddling Friday’s close in low volume moves. But on Friday, gold prices retreated as investors looked to economic data and comments from Federal Reserve officials to assess the outlook for inflation and monetary policy.

Gold investors are assessing the outlook for the U.S. economy, especially regarding whether inflation is easing, and what that could mean for monetary policy.

Both consumer sentiment and short-term inflation expectations increased in February, according to data from a closely followed survey from the University of Michigan released on Friday.

In comments made throughout the week, central bank officials have indicated that their battle with inflation is not yet over and that there could be further interest rate hikes, depending on economic data.

In continuing the bearish theme for gold, Philadelphia Fed President Patrick Harker said on Friday he saw the Fed’s policy rate going up to somewhere above 5% and holding there for a while, and flagged the prospect of rate cuts in 2024.

Short-Term Outlook

With market participants now expecting the Fed’s target rate to peak at 5.188% in July, gold is likely headed lower over the near-term. It’s going to have to take a big miss to the downside in Tuesday’s CPI report to change this assessment.

Today’s cautious tone in gold is a sign that traders are challenging Fed Chairman Jerome Powell’s “disinflation” story and preparing for the possibility of upside risks to inflation. This could push back against recent dovish expectations and lead gold traders to revisit the possibility of higher-for-longer interest rates.

This supports the outlook calling for lower gold prices over the near-term.

Data on Tuesday is forecast to show the U.S. monthly consumer prices climbing 0.4% month-on-month in January, according to a Reuters survey of economists. Core Inflation is also expected to rise by 0.4% month-on-month.