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Forecast for the price of gold: XAU/USD recovery aims toward $1,800 as US inflation prospects test Fed hawks

Daniel Rogers

Dec 06, 2022 14:57

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The price of gold (XAU/USD) is still rising, hovering around $1,778 as the US dollar battles to maintain its week-start gain on early Tuesday. In addition to the movements of the dollar, technical analysis supports bullion buyers in maintaining control even as markets contract prior to the Federal Reserve's policymakers going dark.

 

On Monday, the US ISM Services PMI increased to 56.5 in November from 53.1 in the market expectation and 54.4 in the prior readings, while Factory Orders likewise showed 1.0% growth vs 0.7% predicted and 0.3% in the prior readings. Additionally, the S&P Global Composite PMI increased to 46.4 from 46.3 initial estimates, while the corresponding figure for services increased to 46.2 from 46.1 flash expectations.

 

On Friday, the US Nonfarm Payrolls (NFP) surprised markets by increasing to 263K instead of the 200K predicted and the 284K previously reported, although the unemployment rate for November was in line with market expectations and previous readings at 3.7%. Charles Evans, president of the Chicago Federal Reserve, commented after the positive report that "we are probably going to have a slightly higher peak to Fed policy rate even as we moderate pace of rate hikes."

 

However, it should be noted that a surprise decline in US inflation expectations from a one-month high, as measured by the 10-year and 5-year breakeven inflation rates, according to data from the St. Louis Federal Reserve (FRED), calls into question the recent hawkish bias regarding the US Federal Reserve's (Fed) next move. The most recent estimates of inflation forecasts for the next five and ten years show a decline from the one-month peak to 2.46% and 2.39%, respectively.

 

In other places, the market's optimism appeared to have been aided by expectations that China will soon relax its rigorous Zero-COVID policy. According to Reuters, an anonymous source, China is expected to announce a further reduction of some of the world's strictest COVID regulations as early as Wednesday.

 

A three-day slump is broken by the S&P 500 Futures, which record intraday gains of 0.20 percent around 4,011. However, the US 10-year Treasury note yields have fallen three basis points (bps) to 3.56% as of press time, following a rally from an 11-week low established last Friday.

 

Moving on, Gold may continue to recover despite what is likely to be a slow day, although concerns about China and the Fed seem crucial for short-term trends.


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