Gold Price Forecast: Facing Challenges as Traders Await Fed’s Monetary Policy Clarity

Gold Highlights

• Traders eagerly await the Fed’s policy clarity
• Challenges persist despite tamer CPI data
• Influenced by economic concerns and debt ceiling issue

Gold Overview

Gold (XAU) prices are nearly unchanged on Thursday, after a lackluster performance in the previous trading session. Despite a decrease in U.S. Treasury yields and the U.S. Dollar, optimistic traders have not shown a significant response, even with the release of a report on consumer inflation on Wednesday, which came in below expectations.

This shows that traders are not sure whether inflation is weak enough to push the Fed into cutting interest rates. They are waiting for more clarity on the U.S. Federal Reserve’s monetary policy before taking any major positions. This suggests prices may become rangebound.

Currently, at 06:25 GMT, Gold (XAU) is being traded at $2032.30, which is up $0.78 or +0.04% from the previous day. On Wednesday, the SPDR Gold Shares ETF (GLD) settled at $188.71, which is down $0.31 or -0.16%.

Fed May Pause Rate Hikes Amid Tamer CPI

In April, the consumer price index (CPI) rose by 0.4%, slightly lower than the expected 5% annual increase. This might cause the central bank to pause an upcoming interest rate hike. However, there are still risks that could require the Federal Reserve to maintain higher rates for a longer period.

Gold Faces Challenges

Gold initially rose in response to the CPI data, but it may face challenges due to steady core inflation and the impact of rising interest rates. Analysts believe gold could aim for record highs driven by economic concerns like the U.S. debt ceiling default.

Cautious Traders Selling Rallies

There’s a possibility that the Federal Reserve will put the interest rate hike on hold next month, as markets indicate a high chance of rates remaining unchanged. New York Fed President John Williams mentioned the potential for further rate increases if inflationary pressures persist. While gold enjoys ongoing support, investors are cautious and tend to take profits if the price goes beyond $2,050.

Debt Ceiling Concerns Underpinning Prices

U.S. President Joe Biden emphasized the urgency of addressing the debt ceiling, as failure to do so could result in a recession. The debt ceiling issue has provided stability to gold prices, but the response to a potential ceiling increase while the Federal Reserve is on pause and weak U.S. economic data is sought remains uncertain.

Technical Analysis

Gold is edging lower, but remains above its pivot at $2002.54. This price is controlling the near-term direction of the market.

A sustained move over $2002.54 will indicate the presence of buyers. The first upside target is (R1) at $2035.78. Overtaking this level will indicate the buying is getting stronger with the next major target (R2) at $2082.03.

A failure to hold $2002.54 will signal the presence of sellers. If this generates enough downside momentum then look for the selling to possibly extend into (S1) at $1956.30.