Gold Price Forecast: XAUUSD Prepares for Next Move Near $5,000 Ahead of Fed Decision

Gold (XAU) prices consolidate around the psychological mark of $5,000 in the early Asian trading session on Wednesday. Investors became cautious ahead of the next interest rate decision of US Federal Reserve. The market players are still unsure of the future trend of the monetary policy which is maintaining the gold prices at a relatively steady level in the short term. The precious metal is on the verge of increasing geopolitical risks and the likelihood of more restrictive monetary policy in the United States.

Geopolitical Risks and Monetary Policy Shape Gold’s Direction

Middle East Tensions Increase Safe-Haven Demand

The growing tensions in the Middle East support the gold prices. These tensions are worse with the news that Israel killed the Iranian security chief Ali Larijani, and Iran set ablaze a major natural gas field in the United Arab Emirates. Meanwhile, the US President Donald Trump threatened to increase military attacks on the Kharg Island, the major oil export center of Iran.

These developments make world markets less predictable and investors shift their capital to safe havens such as gold. Despite geopolitical tensions, gold prices are showing limited gains due to strength in the US dollar index. The market is waiting for the Federal Reserve’s decision on Wednesday which will likely drive the next move in gold market.

Rising Oil Prices and Fed Policy Create Headwinds for Gold

On the other hand, the rising oil prices further complicate the situation. The rising trend in crude oil prices is raising inflation risks in global economies. Therefore, central banks might postpone rate cuts and prefer tighter policies.

An increase in interest rates makes the US dollar stronger and raises the opportunity cost of holding non-yielding assets such as gold. Consequently, the inflationary shock from the rise in oil prices could curtail the future increases in gold in the short term despite the high geopolitical risks.

The Federal Reserve will likely maintain interest rates in the range of 3.50% to 3.75%. After the decision is made, the attention of market will be directed towards the remarks of Fed Chair Jerome Powell. If Powell signals hawkish approach, the US dollar would appreciate and exert short term pressure on the prices of gold.

The latest economic figures are also not positive as ADP Employment growth decreased by 14.75K to 9K.

On the other hand, the Pending Home Sales increased by 1.8% in February, after declining to 9K in January. These contradictory indications underscore ambiguity in US economy which can fuel uncertainty about the next move in gold prices.

Gold Price Technical Outlook: Key Levels to Watch

The daily chart for gold shows that the price is consolidating around the 50 day SMA which is aligned at pivotal support of $5,000. The thin trading range around $5,000 indicates that market is waiting for the Fed decision on Wednesday. A break above $5,250 is required to push gold price higher. On the other hand, a break below $5,000 will indicate further downside to $4,800.

The 4-hour chart for gold also shows price consolidation above $4,800. The overall picture still favours bullish momentum but a correction to $4,800 cannot be ignored.

Bottom Line

Gold prices are holding near important level at $5,000 with investors waiting for good news from the Federal Reserve. Geopolitical tensions in the Middle East are increasing and continue to support safe-haven demand. However higher oil prices and risks of inflation are boosting expectations of tighter monetary policy.

This could help the US dollar and restrict the gains of gold in the short term. The next move in gold will presumably be dependent on the Fed decision and tone of Jerome Powell’s comments. A break above $5,250 could see revival of bullish momentum, while a break below $5,000 could signal deeper correction towards $4,800.

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