Weaker Dollar Underpinning Gold Ahead of ADP Report

Gold futures are inching slightly higher early Wednesday, helped by flat Treasury yields and a weaker U.S. Dollar. Increasing appetite for riskier assets is weighing on both yields and the greenback after a recent surge to multi-month levels.

One of the factors driving the price action is uncertainty over the timing of Federal Reserve rate hikes beyond the widely expected March rate rise. Furthermore, some Fed officials are downplaying the possibility of a 50 basis point rate hike next month.

At 11:22 GMT, April Comex gold futures are trading $1803.40, up $1.90 or +0.11%. On Tuesday, the SPDR Gold Shares ETF (GLD) settled at $168.23, up $0.14 or +0.08%.

Pace of Fed Rates Remain Hot Topic

A week ago, when faced with mounting pressure from rapidly rising consumer prices, the Federal Reserve said it is preparing to raise interest rates sooner – and perhaps more aggressively – than had been expected just a few months ago.

At the conclusion of a two-day meeting on January 26, Fed Chairman Jerome Powell signaled that he and his colleagues are likely to begin raising rates in March. However, policymakers raised some concerns when it didn’t reveal a timetable for future rate hikes.

On Monday, some members offered their opinions on what the Fed should do after making its initial rate hike. These comments were a source of volatility because some suggested future rate hikes were likely to be data dependent and not necessarily automatic. This helped give gold prices a boost.

Fed officials including Kansas City’s Esther George and San Francisco’s Mary Daly stressed that they want to avoid unnecessary disruptions to the U.S. economy as they prepare to start raising interest rates.

Gold is also being underpinned by remarks from U.S. Federal Reserve officials that pushed back against potentially aggressive rate increases this year. The comments weighed on the U.S. Dollar, making dollar-denominated gold more attractive to foreign buyers.

A noted hawk, St. Louis Fed President James Bullard said on Tuesday he would argue for interest rate rises in March, May and June, but did not favor a half-point move.

Short-Term Outlook

April Comex gold futures are likely to remain rangebound until investors get some clarity from the Fed on the pace of future rate hikes. This means the retracement zone at $1782.50 – $1758.80 will remain support, and $1819.00 – $1833.90 resistance.

Labor reports this week could offer some insight into how aggressive the Fed can be. It is generally thought that the Fed will take what the labor market gives it. However, officials have to be careful about hurting labor market growth by increasing interest rates too quickly.

On Tuesday, the JOLTS report came in a nearly 11 million, more than 4.6 million above the total unemployment level. This is a good sign for the economy and the labor market.

On Wednesday, a private payroll services report from ADP is set to release its January employment change report at 13:15 GMT. It is expected to show the private sector added 185K new jobs. This would be down from December’s growth of 807,000 private payrolls, according to ADP.