Gold Price Forecast XAU/USD – Traders Expected to Believe Powell This Time

Gold futures are edging higher on short-covering and position-squaring ahead of a speech later on Tuesday by U.S. Federal Reserve Chair Jerome Powell. Traders are hoping Powell offers hints about future rate hikes after last week’s strong economic data. Bullion is also being underpinned by a dip in U.S. Treasury yields and a slightly weaker U.S. Dollar.

At 09:27 GMT, April Comex gold futures are trading $1889.20, up $9.70 or +0.52%. The XAU/USD is at $1875.98, up $7.42 or +0.40%. On Monday, the SPDR Gold Shares ETF (GLD) settled at $173.78, up $0.32 or +0.18%.

Rebounds Late Monday, but Gains Capped

Gold edged higher on Monday, with investors banking on the precious metal’s safe-haven appeal as concerns about an economic slowdown linger, after a stronger dollar and higher Treasury yields pushed prices into a one-month low.

The move came after gold prices dropped more than 2% on Friday after economic data showed U.S. job growth accelerated sharply last month, with focus on speeches by a host of Fed officials this week, starting with Chairman Jerome Powell on Tuesday at 17:00 GMT.

Powell Not Expected to Waver on Need for More Rate Hikes

Federal Reserve Chair Jerome Powell had a clear message after the central bank lifted its benchmark interest rate by 25 basis points on Feb. 1: as “gratifying” as it is that inflation has begun to slow, the central bank is nowhere near to reversing course or declaring victory.

“It’s going to take some time” for disinflation to spread through the economy, Powell said in a news conference following the Fed’s latest quarter-point interest rate increase. He said he expects a couple more rate hikes still to go and “given our outlook, I just don’t see us cutting rates this year.”

Powell further added, “It is our judgment that we’re not yet in a sufficiently restrictive policy stance, which is why we say that we expect ongoing hikes will be appropriate.”

Short-Term Outlook

Last Wednesday, investors ignored Powell’s hawkish tone, making bets on just one more rate hike ahead and piling further into bets that rates will be lower by year’s end than they are now.

However, these investors paid a steep price on Friday after a hotter-than-expected U.S. labor market report and stronger-than-expected services data chased them out of the market.

At last Thursday’s close, traders were looking for the Fed to end its interest rate hiking cycle in March at about 4.88%. Now investors are looking for two more rate hikes into June with a terminal rate at 5.03%.

Traders will be looking to Powell to confirm the end date and the terminal rate, but if he is even more hawkish in predicting rate hikes beyond June then look for gold prices to weaken.