Gold Forecast – XAU Eyes PCE After US Dollar

Gold Fundamental Forecast: Bearish

Gold prices fell again last week, although the pace of losses slowed as credit risk increased in the markets. China’s Ever Grande Group has been the catalyst for traders to secure assets. Offshore bondholders reported last week that they had not received coupons from the Chinese real estate giant. Investors are still on the brink of yet another round of US dollar coupon payments on October 11th.

Instead of gold, investors preferred the US dollar. Traders sold US Treasuries last week after the Federal Reserve announced plans to halt balance sheet growth later this year. The FOMC ruling has sharpened the yield curve, suggesting traders agree with the Federal Reserve’s expectation that rising interest rates will ultimately be driven by strong economic activity and inflation. CME Group FedWatch at the FOMC meeting in June 2022 has a 15.6 percent chance of hitting its 25-point base rate, up from 9.9 percent last week.

cme group fed tool, rate bets

Source: cmegroup.com

High yields on government bonds often hurt the price of gold because it is interest-free. In addition, the gold price tends to decrease when the yield curve rises – this is due to the predictive quality of the performance curves due to rising prices and economic activity. Next week, the Federal Reserve will monitor the highest consumer personal spending through accurate inflation measurements. Analysts predict the number will be 4.2 in July, up from 4.2 in July.
If you don’t know this number, some of the conditions for a rate hike can be lessened, which can lead to a surge in gold. However, despite inflation well above the Federal Reserve’s target, the labor market data provides more relevant information about rising interest rates. However, the first information on Thursday’s unemployment claims comes on the eve of the September non-agricultural wage report, which is expected next Friday.

gold price versus 30-year treasury yield

Chart created with TradingView

— Written by Thomas Westwater, Analyst for DailyFX