Gold Price Forecast XAU/USD – Traders Shrug Off Hawkish Fed Comments; Focus on Drop in China COVID Cases

Gold futures are up sharply on Tuesday as a surprise break in the U.S. Dollar against a basket of major currencies ignited a quick reversal to the upside in bullion. The intraday rebound may have been fueled by the news that COVID-19 cases in China dropped for the first time in a week.

The price action suggests China’s COVID news is offsetting pressure from hawkish remarks by U.S. Federal Reserve officials on interest rate hikes that triggered Monday’s sell-off.

At 10:29 GMT, February Comex gold futures are trading $1769.60, up $14.30 or +0.81%. On Monday, the SPDR Gold Shares ETF (GLD) settled at $161.95, down $1.27 or -0.78%.

Gold Turns Higher as China Records Drop in New Daily COVID Cases

Gold prices reversed early weakness on Tuesday after China reported a decline in new COVID-19 infections for Nov. 28. The country said local infections, mostly asymptomatic, totaled 38,421, down from a record high of 40,052 reported for Sunday, according to CNBC calculations of Wind Information data.

The last time the daily case count fell from the prior day was on November 19, the data showed.

Additionally, there was no indication of new protests on Monday. Over the weekend, students and groups of people across China held public demonstrations to protest the country’s stringent zero-COVID policy.

Fed Officials Reiterate Their Stance on Further Rate hikes

The greenback reversed weakness on Monday and gold prices retreated in response to hawkish comments from St. Louis Fed President James Bullard and New York Fed President John Williams.

Bullard said that the Fed needs to raise interest rates quite a bit further, while Williams said the U.S. central bank needs to press forward with rate rises but did not say how fast it will need to boost short-term borrowing costs.

Short-Term Outlook

Today’s price action suggests gold investors are putting more weight in the drop in new COVID cases in China and the news that the protests may be over than in the hawkish comments from the Fed officials.

After digesting the Fed’s Bullard and Williams comments, traders may have concluded that they didn’t really offer anything new. Both had been hawkish before, but last week’s Fed minutes made it clear that policymakers were leaning toward trimming future rate hikes to 50 basis points.

Later today at 14:00 GMT, traders will get the opportunity to react to two reports that should show the impact on the Fed rate hikes on the housing market.

At 15:00 GMT, US Consumer Confidence is expected to dip from 102.5 to 100.0.