Gold Price Forecast XAU/USD – Underpinned by Weaker Dollar as China Eases COVID-19 Restrictions

Gold futures are edging higher on Tuesday on low holiday volume. The market is being underpinned by a weaker U.S. Dollar and technical buying above the psychological $1800.00 level. However, gains are likely being limited by firm Treasury yields. The catalyst behind the price action is China’s decision to further ease COVID-19 restrictions.

At 12:58 GMT, February Comex Gold futures are trading $1817.20, up $13.00 or +0.72%. The SPDR Gold Shares ETF (GLD) is expected to open higher. It closed at $167.28, up $0.52 or +0.31% on Friday. There was no trading on Monday.

China Eases COVID-19 Travel Quarantine Rules

Gold is being supported by a weaker greenback, which tends to drive up foreign demand for dollar-denominated bullion.

The dollar is under pressure on Tuesday after China further relaxed its COVID-19 curbs, fueling hopes of a recovery in the world’s second largest economy.

China said it would stop requiring inbound travelers to go into quarantine starting Jan. 8, a major step in reopening its borders, adding that it would also downgrade the seriousness of COVID as it has become less virulent.

The optimistic outlook for China is weighing on demand for the safe-haven dollar. Some investors who bought the greenback last week as protection against a global recession are now liquidating those positions in anticipation of China opening its economy in the near future.

Traders Anticipating Smaller Rate Hikes from Federal Reserve

Gold is also being underpinned by data from Friday that showed U.S. consumer spending barely rose in November, while inflation cooled further, reinforcing expectations that the Federal Reserve could scale back on its aggressive monetary policy tightening path.

Gold’s Gains Limited by Treasury Yield Rise

U.S. Treasury yields climbed on Tuesday as markets reopened after Monday’s Christmas holiday and investors awaited data that could provide fresh clues about the state of the U.S. economy.

While the weaker U.S. Dollar provides support, higher yields could limit gains. This could hold gold prices in a range until they get some clarity from fresh economic data. Essentially, gold is going to be data dependent until the Federal Reserve’s next interest rate decision and monetary policy statement on February 1.

Daily Forecast

Look for a tight trading range if yields continue to rise and the dollar remains weak.

Gold prices could rally further if today’s economic reports drive yields lower. Earlier today, the Goods Trade Balance came in better than expected while Preliminary Wholesale Inventories rose move than expected.

At 14:00 GMT, traders will get the chance to react to the HPI (Home Price Index) and the S&P/CS Composite-20 HPI.