Gold Prices Eye Fed Chair Jerome Powell Testimony and Inflation Data

Gold Fundamental Forecast: Bearish

• Gold ends week lower as rate hike bets signal quicker hikes
• A weak NFP jobs report failed to bolster bullion prices
• CPI data, Fed Chair Powell testimony in focus next week

The price of gold ended last week on a sour note after a disappointing US non-farm payrolls report failed to spur haven flows into the metal. The US Dollar DXY index dropped nearly half a percent, but that didn’t offer much reprieve to falling bullion prices. Markets are still pricing in an increasingly aggressive Federal Reserve rate hike path despite the weaker-than-expected NFP print.

Treasury yields continued to climb into the weekend. The 10-year note’s yield rose to its highest level since January 2020 as traders ditch government bonds in preparation for higher rates. A sustained rise in prices across the economy is the driving force bolstering rate hike bets, and some Fed officials are now calling for three rate hikes this year. Gold is expected to perform poorly in rising rate environments, given the asset’s non-interest bearing nature.

That said, the yellow metal may have a hard time moving higher in the near term. However, this week will see the United States report updated inflation data for December. Analysts expect the core consumer price index (CPI) to rise 5.4% on a year-over-year basis, according to a Bloomberg survey. That would be up from November’s 4.9% print.

Core CPI excludes volatile energy and food prices, a measure that Fed officials prefer when assessing policy moves. A hotter-than-expected CPI print could very well lock in a high chance for a March rate hike. That would bode poorly for gold prices. Wednesday’s inflation data will be preceded by several Fed speakers, and Chair Powell is slated to testify before the Senate Banking Committee. Altogether, it should be an action-packed week for the yellow metal.

Source: fred.stlouisfed.org

— Written by Thomas Westwater, Analyst for DailyFX.com

To contact Thomas, use the comments section below or @FxWestwater on Twitter