Gold Price Forecast: Lower as Dollar Strengthens, Rate Hike Expectations Rise

James Hyerczyk
Updated: May 24, 2023, 08:59 UTC

Investors await Fed minutes & US PMI for insights on monetary policy. Gold prices tied to interest rate expectations.


In this article:

Gold Headline

  • Gold prices decline due to stronger U.S. dollar, rising rate expectations.
  • Treasury yields reach a 10-week high, affecting gold’s appeal.
  • Market sentiment shifts as investors anticipate further rate hikes.

Gold Overview

Gold (XAU) prices extended losses on Tuesday, pressured by the strengthening of the U.S. dollar and Treasury yields due to rising bets for higher interest rates. The dollar index was up 0.3%, making dollar-priced gold less attractive for overseas buyers.

Meanwhile, benchmark Treasury yields remained near a 10-week high. This realignment of prices is a result of the market not ruling out another rate hike, which is a significant shift compared to the sentiment just a month ago.

At 12:53 GMT, Gold (XAU) is trading $1959.00, down $10.87 or -0.55%. On Monday, the SPDR Gold Shares ETF (GLD) settled at $183.22, down $0.42 or -0.23%.

Fed Minutes, US PMI to Impact XAU

Investors are eagerly awaiting the release of the minutes from the Federal Open Market Committee’s May meeting and Flash PMI figures from the U.S. These events will provide further insights into the future monetary policy decisions.

Minneapolis Fed President Neel Kashkari expressed the view that U.S. rates may need to go “north of 6%” in order to bring inflation back to the Federal Reserve’s 2% target. Similarly, St. Louis Fed President James Bullard suggested that the central bank may need to raise rates by another half-point this year.

When interest rates rise, gold tends to lose favor among investors since it offers no yield. As a result, gold prices have declined by over $100 from their recent peak. However, the ongoing debt-ceiling negotiations between U.S. President Joe Biden and Republican House Speaker Kevin McCarthy have prevented gold from dropping below the $1,950 mark for now, according to analysts at Commerzbank.

Dollar Strengthens as Fed Signals Tightening

The impasse over the debt ceiling and the expectation of higher U.S. interest rates have contributed to the strength of the dollar and maintained a fragile risk sentiment in the market. Several influential figures from the Federal Reserve have hinted at the need for further tightening of monetary policy.

Market expectations are aligning with the anticipation of higher rates for a more extended period by the Federal Reserve. The U.S. inflation rate remains above the target, and the economy continues to show resilience in the near term.

Money markets indicate a 26% probability of a 25-basis-point rate hike by the Fed next month, compared to a 20% chance a week ago, as reflected by the CME FedWatch tool. Additionally, expectations of interest rate cuts later this year have diminished, with rates expected to remain around 4.7% by December.

Short-term Forecast

The short-term outlook is bearish on gold prices due to the strengthening U.S. dollar, rising Treasury yields, and the anticipation of higher interest rates.

Technical Analysis

Daily Gold (XAU)

Gold (XAU) is trading on the bearish side of the pivot at $2002.54, putting it in a weak position. The market is currently hovering just above a key level at $1956.30 (S1).

Look for counter-trend buying on the first test of $1956.30 (S1). If this move creates enough upside momentum then we could see a retest of $2002.54 over the near-term.

A failure to hold $1956.30 (S1) will indicate the selling pressure is getting stronger. The could extend the breakinto $1923.06 (S2).

S1 – $1956.30 R1 – $2035.78
S2 – $1923.06 R2 – $2082.03
S3 – $1876.81 R3 – $2115.26


About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

Did you find this article useful?