Gold Price Forecast XAU/USD – Firming on Easier Treasury Yields Ahead of Key US PMI Data

Gold futures are edging higher on Tuesday, underpinned by a slight dip in Treasury yields and a weaker U.S. Dollar. Despite the uptick, the buying looks a little tentative ahead of a slew of U.S. economic data this week that could impact the Federal Reserve’s policy decisions at next week’s meeting on Jan. 31 – Feb. 1.

At 09:24 GMT, April Comex gold futures are trading $1953.90, up $8.50 or +0.44%. The XAU/USD is at $1935.92, up $4.48 or +0.23%.  On Monday, the SPDR Gold Shares ETF (GLD) settled at $179.64, up $0.35 or +0.20%.

Treasury Yields Nearly Flat as investors Assess Monetary Policy Outlook

U.S. Treasury yields are slightly lower early Tuesday as gold investors mulled the Federal Reserve’s next interest rate decision and considered the outlook for the broader economy.

Some investors continue to weigh future monetary policy decisions as uncertainty over whether the Fed would hike interest rates by 25 or 50 basis points at its next meeting continued. These investors are the ones hesitating to buy gold at current levels and may actually end up chasing it higher if the Fed opts for the smaller rate hike.

The more aggressive bullish gold investors are following money market traders who believe we’ll only see two more quarter point rate hikes by the Fed to a peak or around 5% by June, with two quarter point cuts following before year-end.

Fed speakers have recently hinted at a potential slowdown in rate increases to 25 basis points, with Fed Governor Christopher Waller saying outright Friday that he would favor a smaller hike. The Fed itself has insisted 75 basis points of more tightening is likely on the way.

The most bullish gold traders are also in the camp that believe the pace of rate increases announced by the Fed in its battle against high inflation has pushed the U.S. economy closer to a possible recession.

Short-Term Outlook

Traders are also looking forward to the release of key economic data this week that could have an influence on Fed policy.

At 14:45 GMT, the U.S. will release its Flash Services PMI and Flash Manufacturing PMI reports. The former is expected to come in slightly better than previously reported at 45.3 and the latter is forecast to come in at 46.0, slightly lower than the previously reported 46.2.

Investors will get the opportunity to react to the U.S. fourth-quarter GDP growth estimates on Thursday. On Friday, it’s the personal consumption expenditure price index (PCE) and personal spending reports that will be watched closely.

The PCE, known as the Fed’s favored inflation gauge, could heavily influence the central bank’s next policy move.

Weaker than expected data will give the Fed a reason to tighten less aggressively, which would be bullish for gold prices.