Gold Price Forecast XAU/USD – Fed’s Hawkish Tone Weighs on Prices for Fifth Straight Session

James Hyerczyk
Updated: Nov 21, 2022, 13:33 UTC

Most policymakers delivered the clearly hawkish message – inflation has not meaningfully softened and interest rates will stay higher for longer.

Comex Gold

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Gold futures are lower for a fifth straight session since hitting two-month high on Nov. 15 at $1791.80. Bullion is being pressured by firm Treasury yields and a surge in the U.S. Dollar against a basket of major currencies.

Essentially, it’s the hawkish tone of several Fed officials that is moving all three markets. Last week was a busy one for Fed speakers with over a dozen Fed policymakers offering their latest views on the economy, jobs, inflation and current policy settings.

Most policymakers delivered the clearly hawkish message – inflation has not meaningfully softened, more work is needed, and interest rates will stay higher for longer.

At 12:00 GMT, February Comex gold is trading $1755.90, down $13.10 or -0.74%. On Friday, the SPDR Gold Shares ETF settled at $162.79, down $1.13 or -0.69%.

Major Shift in Sentiment Encouraging Long Liquidation

Gold prices are up nearly $100 in November with the rally starting after the U.S. government reported an unexpected increase in the unemployment rate. This news was bullish for gold because it served as a sign of a weakening labor market, one of the Fed’s key goals.

Prices continued to soar a few days later following the release of another government report that showed consumer inflation was cooling. The news led to a shift in sentiment with investors betting the Federal Reserve will end its series of 75 basis point rate hikes and downshift to a 50 basis point rate hike at its December meeting.

But the Fed speakers collectively said, “Not so fast”. They emphasized throughout last week that the Fed is going to continue to raise rates until they get inflation back to their mandated 2% level.

St. Louis Fed President James Bullard was particularly hawkish with his commentary saying, even under a “generous” analysis of monetary policy, the Federal Reserve needs to keep raising interest rates given that its tightening so far “had only limited effects on observed inflation.”

But it was his estimate of where rates should climb that rally set the selling in motion by spooking weak longs out of the market.

Bullard said 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, though he would defer to Fed Chair Jerome Powell regarding how much higher to move rates at upcoming policy meetings.

Short-Term Outlook

Gold traders are facing a holiday shortened week so we expect to see volume taper off. Nonetheless, the Fed will release the minutes from its November policy meeting on Wednesday which is expected to echo the hawkish comments from about a dozen Fed speakers last week.

For a look at all of today’s economic events, check out our economic calendar.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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