Gold Price Forecast XAU/USD – Traders Eyeing CPI, Rate Hike, Fed Chair Powell’s Press Conference Comments

Gold futures closed surprisingly higher on Friday despite a rise in U.S. Treasury yields and a firm U.S. Dollar.

Traders seemed to shrug off hotter-than-expected U.S. producer price (PPI) data, which held in check expectations for a 50-basis point rate hike this week. However, it also raised the chances of a recession since the Fed will now have to hold rates at a higher level for a longer-period of time than previously expected.

On Friday, February Comex gold futures settled at $1810.70, up $9.20 or +0.51%. The SPDR Gold Shares ETF (GLD) finished at $167.07, up $0.60 or +0.36%.

Treasury Yields Rise, Dollar Steady as Producer Price Inflation Exceeds Expectations

Yields rose and the dollar was steady after U.S. producer inflation data for November came in above expectations, bolstering the case for continued interest rate hikes by the Federal Reserve even if at a slower pace.

U.S. producer prices (PPI) rose 0.3% last month, data showed, above the 0.2% forecast by economist polled by Reuters.

Traders May Be Focusing on Fed’s Endgame

While the PPI report shows the underlying trend in inflation is moderating, it’s heightening concerns among market participants that this week’s consumer price inflation (CPI) report, which comes out on Tuesday before the December Fed interest rate decision on Wednesday, could also surprise to the upside.

After the release of the PPI report, financial market traders were still leaning toward a 50 basis point rate hike but gold traders seemed to be relieved it wasn’t much higher. One theory is we’re moving closer to the time and the rate at which the Fed will stop raising rates.

“The market seems to be focused on a light at the end of the tunnel, a point at which the Fed is done raising interest rates and based on what we’ve seen general support in gold,” said David Meger, director of metals trading at High Ridge Future.

CPI, Fed and Powell’s Comments Will Set the Tone

The next major move in gold prices will be dependent on Tuesday’s CPI report. And this data will determine how much the U.S. central bank increases its benchmark rate and the rhetoric of Fed Chair Jerome Powell at the post-meeting press conference.

For chart watchers, gold traders still have two choices:  chase the market higher or play for a pullback into support. On Wednesday, the Fed will go a long way in determining how they play the next move.