Gold Price Forecast XAU/USD – Rallies as Economic Data Solidifies Expectations of ‘Less-Hawkish’ Fed

Gold futures are moving sharply higher at the mid-session on Friday, gaining almost 1.50%, and putting the market within striking distance of a seven-month top reached earlier in the week.

The catalysts behind the rally are lower Treasury yields and a weaker U.S. Dollar. Both fell after U.S. economic data solidified expectations of a less-hawkish Federal Reserve. The move is also putting the market in a position to post its third consecutive weekly rise.

At 17:42 GMT, February Comex gold is trading $1867.00, up $26.40 or +1.43%. The SPDR Gold Shares ETF is at $173.70, up $3.18 or +1.86%.

Economic Data Sends Subtle Bullish Message

Subtle weakness in two key U.S. economic reports are helping to fuel today’s rally. Both are driving benchmark Treasury yields close to their lowest levels in nearly two weeks, which is supportive for gold prices. Lower interest rates increase bullion’s appeal as an inflation hedge and decrease the opportunity cost of holding the non-yielding asset.

In economic news, non-farm payrolls increased by 223,000 jobs last month, the smallest gain in two years, after rising 256,000 in November. Economists polled by Reuters had forecast payrolls increasing by 200,000 jobs. The unemployment rate also fell to a pre-pandemic low of 3.5% as the labor market remains tight.

Despite the rise in non-farm payrolls and the drop in the unemployment rate, Federal Reserve officials could draw some solace from a moderation in wage gains.

Average hourly earnings rose 0.3% after gaining 0.4% in the prior month. That lowered the year-on-year increase in wages to 4.6%, the smallest rise since August 2021, from 4.8% in November.

In other news, U.S. services industry activity contracted for the first time in nearly three years in December, offering evidence that inflation was abating.

Technical Analysis

The main trend is up according to the daily swing chart. Taking out this week’s high at $1871.30 will indicate the buying is getting stronger.

The market is also trading on the strong side of a long-term 50% level at $1861.30. A sustained move over this level could lead to an eventual test of the long-term Fibonacci level at $1915.30.

Short-Term Outlook

There was nothing in the non-farm payrolls and ISM Services PMI reports to suggest the Fed would stop raising rates, but the data was soft enough to solidify a 25-basis point rate hike rather than a 50-basis point rate hike at the central bank’s policy meeting on Jan. 31 – Feb. 1.

This “less-hawkish” news is favorable for higher gold prices.