Gold Price Forecast XAU/USD – Grinding Ahead of Key Reports that Could Influence Fed

Gold futures are edging lower on Wednesday after touching their highest level since April 25 the previous session. The market is being underpinned by a dip in U.S. Treasury, while gains are being capped by a firm U.S. Dollar.

At 11:28 GMT, April Comex gold is trading $1942.70, down $9.50 or -0.49%. On Tuesday, the SPDR Gold Shares ETF (GLD) settled at $180.28, up $0.65 or +0.36%.

There are no major U.S. economic releases today, but we could be looking at position-squaring ahead of Thursday’s U.S. Quarterly GDP report and Friday’s PCE Price Index data. Both reports are likely to influence next week’s Fed interest rate decision.

Positive Sentiment Driven by Easier Fed Expectations

The overall sentiment in gold is positive as evidenced by the current $300 rally since bottoming in November. The catalyst behind the move is expectations of a less-aggressive Federal Reserve at its meeting next week, where it is expected to lift its benchmark interest rate by only 25-basis points. Fears of a possible recession were also offering support to gold prices.

Traders Bracing for Economic Growth News, Inflation Data

The U.S. Commerce Department is expected to unveil its initial advance fourth-quarter GDP estimates on Thursday. This will be followed by the PCE Price Index on Friday, which is the Federal Reserve’s favorite inflation indicator.

If the data comes in weaker than expected, confirming the Fed’s 25 basis point rate hike, then Treasury yields should fall, taking the dollar lower. This would provide tremendous support for gold and could even trigger an acceleration to the upside.

Lower interest rates tend to be beneficial for bullion, decreasing the opportunity cost of holding non-yielding bullion. A weaker U.S. Dollar also tends to be bullish for gold prices because it increases foreign demand for dollar-denominated bullion.

Short-Term Outlook

Other than profit-taking by weaker longs, there isn’t a lot of bearish news to look forward to on Wednesday. Prices could continue to grind higher, but I don’t expect to see an acceleration to the upside ahead of this week’s economic data and this close to next week’s major Federal Reserve announcements.