Gold Price Forecast XAU/USD – Uncertainty Over Fed End Rate is Weighing on Prices

Gold futures are slightly higher on Tuesday after posting a dramatic technical reversal top the previous session. A stronger U.S. Dollar is capping gains, while a dip in Treasury yields is underpinning prices.

Yesterday’s price action suggests traders should be bracing for a period of volatility and indecision ahead of next week’s Federal Reserve monetary policy and interest rate decisions.

The anticipation of a slowdown in rate hikes from 75 basis points to 50 basis points starting in December may have helped drive gold prices nearly $200 higher since early November, but it may take more than that to continue the rally.

At 10:04 GMT, February Comex gold futures are trading $1783.50, up $2.20 or +0.12%. On Monday, the SPDR Gold Shares ETF (GLD) settled at $164.41, down $2.85 or -1.70%.

The price action indicates that gold traders need clarity about when the Fed is going to stop raising rates and at what level they will stop. The lack of clarity may be enough to keep traders on the sidelines or encourage some of the weaker longs to take profits and wait for a better price before re-entering on the long side.

Strong Labor Market, Services Industry Data Driving Fed Anxiety

On Friday, government data showed the labor market grew by 263,000 jobs in November, much higher than the 200,000 jobs forecast. The report also showed Average Hourly Earnings rose 0.6%, more than double the estimate.

Yesterday, the ISM Services PMI report came in at 56.5, higher than the 53.5 forecast. Not only did the number beat the estimate, but traders were looking for the figure to come in lower than the previous reading.

The combination of these two reports have gold traders fretting over the Federal Reserve’s interest rate policy path. There are now worries that interest rates may need to stay higher than expected. This concern may be enough to keep a lid on gold prices until next week.

The issue is no longer about whether the Fed will continue with its 75 basis point rate hikes. After Fed Chairman Jerome Powell’s comments last week, the markets have decided that starting with December, the central bank is going to raise rates by 50 basis points at subsequent meeting.

The real problem is how long will they keep raising rates by 50 or 25 basis points and at what level will they stop. Some even believe the Fed won’t stop until there is a recession.

Short-Term Outlook

Today, traders will get the opportunity to react to the U.S. balance of trade report. On Wednesday, it’s the Revised Nonfarm Productivity and Revised Unit Labor Costs that could move the gold market, but we’re more likely to see some serious price movement on Friday with the release of the producer price index (PPI) report.

This report will tell us whether inflation continued to cool in November. And it could be an early indication about what to expect from next week’s consumer inflation report (CPI).