Dollar trends will likely dominate in the gold markets again during the coming week, with data releases and Fed rhetoric in focus. Fed Chair Jerome Powell is likely to take a slightly more hawkish stance regarding expectations of further gradual rate increases, although a measured tone and the promise of continuity is likely to limit gold losses.

Gold prices have lost significant ground during the past week, primarily due to a reversal in dollar fortunes. A recovery in the U.S. currency index, allied with a fresh increase in bond yields, pushed spot prices to one-week lows below $1,325 per ounce before consolidation near $1,330. The impact of U.S. inflation and monetary policy expectations will continue to ripple across all asset classes and will inevitably be a key driver of gold prices during the week ahead.

There are significant U.S. data releases to keep an eye on, although it is important to note that monthly employment data are not scheduled until March 9. The durable goods orders release on Monday and consumer confidence data release on Tuesday will give some insights into the potential impact of tax cuts on business investment and consumer spending trends, with earlier releases having suggested that confidence improved over the month.

U.S. ISM manufacturing data are due for release on Thursday, and the PMI data released earlier suggested that industrial activity strengthened during February. However, there can be significant divergence between the two series on a short-term basis. Given the focus on inflation trends, price data within the ISM data will have a significant impact, with the January reading at the highest level since June 2011. Ahead of the ISM data, the latest PCE price index will be released, and any evidence of acceleration in the data would reinforce inflation fears.

The most important set-piece event of the week is likely to be congressional testimony from Fed Chair Powell, with the appearance before the House of Representatives Financial Services Committee rescheduled to Tuesday, Feb. 27, from Feb. 28. The semi-annual testimony is always an important event, but it will take on additional importance this time around. Given the focus on inflation trends, markets will be extremely anxious to hear Powell's take on the situation.

Powell has only recently taken over as chair from Yellen, and markets will also be looking closely for his overall stance on likely inflation trends and monetary policy. The most likely outcome is that Powell will look to push a message of continuity and controlled tightening, but the rhetoric will be parsed very closely for hints as to whether he will adopt a more hawkish stance.

In this context, comments on financial stability will also have an important influence across asset classes after recent volatility in equities. Hawkish rhetoric would reinforce speculation over a faster pace of interest rate hikes this year, which should underpin the dollar. Markets have, however, already priced in a March hike, and the chances of four Fed Funds hikes this year are close to 30%, limiting the scope for a further shift in market expectations. In this context, the scope for dollar gains and gold losses should be relatively limited.

Further survey evidence of higher inflation would tend to put renewed upward pressure on bond yields. Higher yields often undermine gold, as the cost of carry increases with key technical areas in focus, especially if the U.S. 10-year yield hits the key 3.00% level. Any break above the 3.00% level would likely undermine gold. However, the situation is not clear cut, as gold also attracts defensive long-term support as a hedge against high inflation. If you're looking to trade commodities or currencies, find the right broker with Investopedia's broker reviews and forex broker reviews.

In the view of increased fears surrounding U.S. twin deficits, fears over inflation will attract defensive gold support at times. Equity market trends will also be important given the risk of renewed selling pressure on global stock markets if inflation fears intensify. A combination of sharply higher bond yields, strong dollar gains and resilient equity markets will be needed to push gold below key support levels.

Finally, there is the risk of erratic trading surrounding the month-end period, and overall choppy trading conditions are liable to persist as the markets keep a close watch on Italian political developments late in the week.