Gold Price Forecast XAU/USD – Fed Minutes to Set the Tone

Gold futures are drifting lower on Wednesday with most of the major players sitting on the sidelines ahead of the release of the minutes from the Federal Reserve’s November meeting at 19:00 GMT. Traders are hoping the data provides clues as to the Fed’s tightening path.

At 11:33 GMT, February Comex gold is trading $1753.40, down $1.40 or -0.08%. On Tuesday, the SPDR Gold Shares ETF (GLD) settled at $162.08, up $0.20 or +0.12%.

Despite the importance of the Fed minutes, the response to the news could be subdued because of Thursday’s U.S. bank holiday. Volume is also expected to come in below average on Friday, which means we may not see the true reaction to the minutes until next week.

However, the minutes aren’t expected to reveal too many surprises since the Fed hinted at the possibility of a pivot from its aggressive rate hike policy in its last monetary policy statement.

Since the last Fed policy meeting on November 1-2, gold is trading higher. This month’s more than $100 rally has been fueled by the October consumer inflation report that showed price pressures rose less than expected.

Fed Minutes Expectations

The Fed minutes are expected to reaffirm the recent comments of several Fed officials who said inflation is too high and interest rates are going to continue to rise until it comes down to the central bank’s mandated 2%. The major questions that investors hope the minutes provide the answer to is how high will interest rates go and how long will the Fed hold rates at that level?

Kansas City Fed President Esther George said on Tuesday the Fed may need to raise interest rates to a higher level and hold them there for longer to rein in high inflation.

Meanwhile, St. Louis Federal Reserve President James Bullard said last week the Fed’s target policy needs to rise to at least a range between 5.00% and 5.25% from the current level of just below 4.00% to be “sufficiently restrictive” to curb inflation.

Daily Forecast

Gold has been driven most of the year by the directions of Treasury yields and the U.S. Dollar and Federal Reserve policy has been the catalyst behind those moves. So it goes without saying that investors will be pouring over today’s minutes that could deliver the likely trajectory of the Fed’s rate curve over coming months.

Investors are also hoping the Fed comments on the chances of a global recession. For example, if the global economy continues to struggle, it’s unlikely the Fed will be able to tighten its monetary policy anywhere near as much as the markets are pricing. This should be supportive for gold prices.