Gold Price Forecast XAU/USD – Higher on Lower Yields as Investors Seek Clarity on Fed’s Rate-Hike Path

James Hyerczyk
Updated: Nov 28, 2022, 12:03 UTC

Gold is likely to strengthen if Treasury yields continue to fall, but gains could be limited if safe-haven buying drives the U.S. Dollar higher.

Comex Gold

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Gold futures are spiking to the upside on Monday after shrugging off earlier weakness. The catalysts behind the rally is a drop in Treasury yields and a weaker U.S. Dollar.

Volatility is the theme today as investors return from last week’s extended U.S. Thanksgiving holiday. Early in the session, gold was pressured by a stronger dollar, which rose in response to safe-haven demand that was fueled by protests in China against the government’s anti-COVID policies.

However, gold rallied as the dollar fell from its intraday high as expectations of a slower pace of Federal Reserve interest rate hikes starting in December, offset worries over the protests in China.

At 11:17 GMT, February Comex gold is trading $1775.60, up $6.80 or +0.38%. On Friday, SPDR Gold Shares ETF (GLD) settled at $163.18, up $0.10 or +0.06%.

Chinese Protests Generate Early Pressure

Gold prices slipped early Monday, as the dollar strengthened on safe-haven demand triggered by protests in several Chinese cities over the country’s strict COVID-19 restrictions.

Gold traders were tracking the U.S. Dollar’s move closely amid the increasing uncertainty from the growing unrest in China that seemed to be underpinning the greenback.

The break in the dollar and the rally in gold was spurred by investors looking at the bigger picture, which is the aggressiveness of the Fed moving forward and its plan to fight inflation with rate hikes, while avoiding recession.

Volatility Highlighted as Treasury Yields Slip on Safe-Haven Buying Ahead of Key Economic Data

Treasury yields were under pressure ahead of today’s trading session after minutes from the Fed’s November meeting released last week indicated that the central bank would continue to hike interest rates in coming months, but at a slower pace. Concerns about the speed of rate hikes dragging the U.S. economy into a recession have spread among investors.

Today’s early retreat in yields was fueled by the turmoil in China that created enough concern about the global economy slipping into recession to encourage investors to seek protection in safe-haven U.S. Treasury bonds.

After an early reaction to a stronger dollar, gold investors took notice of the drop in yields and reversed prices higher.

Short-Term Outlook

I don’t see safe-haven demand for gold in the near-term picture but I could build a case for higher prices if U.S. Treasury yields continue to retreat. Driving the direction of yields this week will be several key economic reports that will provide insights into how the U.S. economy is faring as interest rates and inflation remain high.

A series of key labor market data is due this week, including ADP’s private business payroll figures and JOLTs job openings on Wednesday, as well as non-farm payroll and unemployment data on Friday.

Gold traders will also get the opportunity to react to data on personal spending and income figures, for hints about the impact of high inflation and interest rates on consumers.

Gold is likely to strengthen if Treasury yields continue to fall, but gains could be limited if safe-haven buying drives the U.S. Dollar higher.

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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