Gold Price Forecast: XAU Investors Await US Inflation Data, Fed’s Rate Decision

Highlights

• Dollar strength and Fed’s interest rate decision impact gold prices.
• U.S. inflation data to influence rate expectations and gold prices.
• Retail gold demand weakens in China and India, affecting prices.

Overview

Gold (XAU) prices are facing downward pressure on Monday as the dollar maintained its strength, while market participants eagerly awaited the release of U.S. inflation data and the Federal Reserve’s decision on interest rates.

Although the Federal Reserve is widely anticipated to keep interest rates unchanged, it is unlikely to adopt a dovish tone that would attract gold bulls back into the market significantly. The dollar index’s stability also diminished the appeal of bullion for foreign buyers.

Investors Eye CPI and PPI, Rate Expectations

Investors are closely monitoring the upcoming U.S. consumer price index and producer price index data, scheduled for release on Tuesday and Wednesday, respectively. A higher-than-expected CPI reading could potentially influence rate expectations.

Based on Fed fund futures, there is a 73.6% probability that the U.S. central bank will maintain its benchmark overnight interest rate within the 5.00%-5.25% range when its two-day meeting concludes on Wednesday.

However, some concerns persist that the decision to hold rates steady is merely a temporary pause by the Fed, rather than a permanent end to tightening. This leaves room for the possibility of further tightening in subsequent meetings. Lower interest rates tend to increase the attractiveness of gold as a zero-yield asset.

Range-Bound, Anticipating Fed Message

Currently, gold appears to be lacking a sense of urgency to break out of its trading range between $1,917.41 and $1,992.24. This indicates investor indecisiveness and hints at the potential for impending volatility. If the Fed’s message is less hawkish than anticipated, it could trigger a breakout above $1,992.24, with a potential target of $2,052.37.

Weak Retail Gold Demand in Key Markets

In the physical market, retail gold demand weakened in key consumer countries like China and India last week, leading dealers to offer discounts. The volatile gold prices in India prompted buyers to delay their purchases, contributing to the slowdown in retail demand.

Forecast:  Hawkish Fed, Strong Dollar to Weigh on Prices

Overall, gold prices are currently influenced by the dollar’s strength, market expectations surrounding the Fed’s interest rate decision, and the upcoming inflation data. Investors will closely analyze these factors to determine the short-term direction of the precious metal.

Technical Analysis

Gold (XAU) is trading on the bearish side of $1992.24 (PIVOT), putting it in a weak position. However, it’s also trading on the strong side of $1917.41 (S1).  The mid-point of this trading range is $1954.83. Early Monday, the market is on the strongside of the mid-point, indicating a little upside momentum.

A sustained move over the $1992.24 (PIVOT) will signal the return of strong buyers. If this creates enough near-term momentum then look for a surge into the $2052.37 (R1).

Longer-term, a sustained move under $1992.24 (PIVOT) will indicate the selling pressure is still strong. If this creates enough downside momentum then look for the selling to possibly extend into $1917.41 (S1).