Gold Price Forecast XAU/USD – Uncertainty Over Inflation Could Create Rangebound Trade

Gold is trading lower on Friday as the U.S. Dollar strengthened as Treasury yields rose. Volume is extremely low due to Thursday’s U.S. holiday. The price action suggests investors are booking profits ahead of the weekend.

Gold futures are now trading lower for the week after expectations of less aggressive interest rate hikes from the Federal Reserve drove bullion prices sharply higher on Wednesday.

At 14:31 GMT, February Comex gold is trading $1766.50, down $3.30 or -0.19%. The SPDR Gold Shares ETF (GLD) is trading $162.93, down $0.15 or -0.09%.

Dollar Strengthens, but Headed Lower for Week

The U.S. Dollar is edging higher on Friday, but remained near a three-month low as it headed for a weekly loss, as the prospect of the Federal Reserve slowing monetary policy tightening as soon as December preoccupied investors.

Minutes from the Fed’s November meeting released earlier this week showed that a “substantial majority” of policymakers agreed it would soon be appropriate to slow the pace of interest rate rises.

Those remarks sent the dollar tumbling and gold price soaring as the Fed’s aggressive rate increases and market expectations of how high the central bank could take them has been a big driver of the currency’s 10% surge this year.

Treasury Yields Tick Higher as Investors Assess Fed Rate Policy Outlook

U.S. Treasury yields were slightly higher on Friday as investors digested the Federal Reserve’s November meeting minutes, which suggested that interest rate hikes would be slowed in the coming months.

The yield on the benchmark 10-year Treasury note was about 2 basis points higher at 3.726%. The 2-year Treasury yield was last trading at around 4.512%, up about 2 basis points.

As markets re-opened for a half-day of trading on Friday, after remaining closed for Thanksgiving on Thursday, they continued to absorb the Fed’s November meeting minutes published earlier in the week.

Short-Term Outlook

This week’s volatility suggests investors still aren’t sure about gold’s short-term direction. This is likely because they aren’t sure of the Fed’s next move at its December policy meeting. The lack of direction will probably be driven by the uncertainty surrounding the next U.S. consumer inflation report, which comes out shortly before the central bank’s mid-December meeting.

Until gold traders get some clarity on the direction of U.S. inflation, it’s going to be difficult to take a major position with any conviction.