Gold Price Forecast: XAU Faces Challenges from Interest Rates, Debt Limit Talks, and Strong Dollar

Gold Highlights

• Gold reacts to the movement of the U.S. Dollar
• Recent economic data increases recession concerns, supporting gold prices
• Debt limit discussions and dollar’s strength can impact gold prices

Gold Overview

Gold (XAU) is edging up on Monday, closely tracking the movement of the U.S. Dollar. Traders are attempting to recover from the losses incurred last week. Gold prices declined in the previous week as the safe-haven currency gained strength due to concerns about inflation in the domestic market and global growth worries. This resulted in its largest weekly surge since September.

At 07:12 GMT, Gold (XAU) is trading $2017.18, up $7.51 or +0.37%. On Friday, the SPDR Gold Shares ETF (GLD) settled at $186.82, down $0.31 or -0.17%.

Economic Data Surprises Raise Recession Concerns

Recent downside surprises in U.S. economic data have increased the likelihood of a recession within the next 12 months. This has led to safe-haven flows, which have provided some support for gold prices. On Friday, data revealed that U.S. consumer sentiment dropped to a six-month low in May due to concerns over political disputes regarding raising the federal government’s borrowing cap, which could potentially trigger a recession.

Biden to Discuss Debt Limit & Economy

U.S. President Joe Biden has announced his plan to meet with congressional leaders on Tuesday to discuss raising the nation’s debt limit and avoiding a catastrophic default. The outcome of these talks will have implications for the overall economic climate and could influence gold prices.

Gold’s Performance Tied to Uncertainty

Gold tends to perform well during periods of economic or financial uncertainty. However, the appeal of non-yielding gold is diminished by higher interest rates. The market is currently assessing the Federal Reserve’s next moves, and there is an 83.4% probability, according to the CME FedWatch tool, that the U.S. central bank will maintain its rates at the current level in June.

Forecast:  Headwinds from Strong Dollar

While gold has retained some of its recent gains and continues to trade near its record high, the strength of the rival safe-haven dollar has dampened its shine. The dollar has risen to a five-week high against major currencies, making gold relatively less affordable for buyers holding other currencies.

In the short term, there is a cautious outlook for gold prices. Although gold has maintained some of its recent gains and is trading close to its record high, the strength of the safe-haven dollar presents a potential obstacle.

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 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.

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.