Gold Price Forecast XAU/USD – Vulnerable to Correction Ahead of CPI Report, Fed’s Rate Hike Decision

Gold futures are edging higher on Monday after reaching its highest level since August 15 earlier in the session. The early session rally negated Friday’s potentially bearish chart pattern that could have led to a shift in momentum. Nonetheless, after rallying nearly $200 since Nov. 3, the market looks vulnerable to a near-term correction.

Buyers reacted to a drop in the U.S. Dollar after news broke that China was easing some of its COVID-19 curbs. However, gains were limited by a slight rise in Treasury yields.

At 07:43 GMT, February Comex gold is trading $1812.70, up $3.10 or +0.17%. On Friday, the SPDR Gold Shares ETF (GLD) settled at $167.29, down $0.55 or -0.33%.

Dollar Lower after Announcement of China COVID-19 Restrictions

The greenback is under a little pressure on Monday after traders looked past the stronger than expected U.S. jobs data released on Friday. That report had some traders thinking the Fed may delay its plan to begin reducing rate hikes from 75 basis points to 50 basis points at its December meeting.

Meanwhile, some traders sold the safe-haven dollar as growing hopes of China reopening boosted risk sentiment.

News broke over the weekend that China relaxed virus testing rules in some cities, signaling more easing may come in the nation, which has been under strict COVID-related restrictions for more than two years.

Treasury Yields Edge Higher Underpinning Dollar, Capping Gold Prices

Helping to cap gains on Monday is a slight firming in U.S. Treasury yields. Government debt traders are still digesting Friday’s red-hot employment report that essentially was a blow to the Fed’s anti-inflation efforts and raised concerns the central bank may not be able to reduce its December rate hike as suggested by several Fed officials and Fed Chairman Jerome Powell last week.

Short-Term Outlook

Gold prices have been soaring as Fed officials have been indicating that the pace of rate hikes could slow down soon, and markets are now expecting the central bank to implement a 50 basis point rate hike at its December meeting.

However, Friday’s strong NFP report seems to have rattled investors a little by creating uncertainty ahead of the Dec. 13 release of the U.S. Consumer Price Index (CPI) report.

It will be hard to build a case for a 50 basis point rate hike if both the jobs report and consumer inflation reports exceed expectations. This would be a huge blow to gold bulls and could trigger a steep break.

That being said, from now until the Fed meets on Dec. 13-14, we’re expecting heightened volatility in gold. It may be just a lot of noise, but traders should pay attention to the price action.

Uncertainty ahead of the CPI report could lead investors to take profits, triggering a nice correction. That could create a buying opportunity. The choice at this time is to chase prices higher or play for a pullback into a value zone.