Gold Price Forecast XAU/USD – Traders Cautious Ahead of Thursday’s CPI Report

Gold futures are nearly flat on Tuesday, hovering near its highest level since June 2022, as traders await a key speech by Federal Reserve Chair Jerome Powell. The price action indicates investors are being cautious ahead of Powell’s remarks because they could offer more insight into the U.S. central bank’s rate-hike trajectory.

At 08:46 GMT, February Comex gold is trading $1878.80, up $1.00 or +0.05%. On Monday, the SPDR Gold Shares ETF (GLD) settled at $174.08, up $0.37 or +0.21%.

Buoying gold the past two sessions has been a drop in Treasury yields and a weaker U.S. Dollar although there is a little giveback today. The current move is being fueled by several factors including the cooling of U.S. wage growth, a contraction in the services industry and expectations of a 25 basis point rate hike by the Fed on Feb. 1.

These bullish factors helped send gold to a seven-month high on Monday. Halting gains, however, were cautious comments from a pair of Fed officials.

Fed Members Remain Cautious When Discussing Rate Hike Expectations

Federal Reserve policymakers say fresh inflation data out later this week will help them decide whether they can slow the pace of interest rate hikes at their upcoming meeting, to just a quarter point increase instead of the larger jumps they used for most of 2022, Reuters wrote.

If U.S. consumer price data released on Thursday confirms the cooling seen in the most recent monthly jobs report, Atlanta Fed Bank President Raphael Bostic told reporters on Monday that he would have to take a quarter point increase “more seriously and to move in that direction.”

“Eventually I want us to get to 25” basis point rate hikes, he said. “The specific timing of that is going to be a function of the data that comes in.”

San Francisco Fed President Daly Sees Terminal Rate at 5% to 5.25%

Additionally, asked in a Wall Street Journal interview early on Monday about her preferred rate-hike size for the Jan. 31 to Feb. 1 meeting, San Francisco Fed President Mary Daly said both 25 and 50 basis point rate hikes are “on the table” for her.

She, like Bostic, expects the Fed policy rate – now at 4.25% to 4.5% – to need to rise to a 5% to 5.25% range to do the job on inflation.

Getting there in “gradual steps does give you the ability to respond to incoming information” and take account of the delayed effect of higher borrowing costs on the broad economy, Daly said.

But at the same time, “I want to be data dependent, not wall off a 50 basis point increase,” she said, adding that she will pay close attention to any signs in this week’s consumer price index report for improvement in the post persistent part of the inflation picture, the price of core services excluding shelter.

Short-Term Outlook

The Fed comments may have put a lid on gold prices with talk of a 5% to 5.25% terminal rate, but prices remained firm after the remarks, suggesting investors remain committed to expectations of a final Fed rate below 5%.

It looks as if gold prices could move into a trading range until Thursday’s U.S. consumer price index report. This data is likely to lead to a spike to the upside or a plunge to the downside.