Gold Prices Forecast: Capped by Strong Dollar Ahead of Fed Rate Cut Decisions

James Hyerczyk
Updated: Jun 11, 2024, 10:53 GMT+00:00

Key Points:

  • Gold remains under pressure, continuing its bearish trend and trading below its 50-day moving average, showing intermediate-term weakness.
  • On Tuesday, gold prices fell as the U.S. dollar strengthened by 0.1%, making gold more expensive for other currency holders ahead of key U.S. reports.
  • The Federal Reserve's June meeting starts Tuesday, with economic projections likely to show fewer rate cuts due to persistent inflation, impacting gold's appeal.
Gold Prices Forecast

In this article:

Gold Prices Decline as Dollar Strengthens and Fed Meeting Approaches

Gold prices remain under pressure, continuing their bearish trend after a steep sell-off last Friday. The metal is trading below its 50-day moving average, indicating weakness in the intermediate term.

At 10:38 GMT, XAU/USD is trading $2307.650, down $3.345 or -0.14%.

U.S. Dollar Gains Ahead of Key Reports

On Tuesday, gold prices fell as the U.S. dollar strengthened. Investors are positioning themselves ahead of a crucial U.S. inflation report and the Federal Reserve’s interest rate forecasts. The dollar’s rise of 0.1% makes gold more expensive for holders of other currencies, reflecting their inverse relationship.

Support Levels and Market Focus

Gold is nearing the support level at $2,277.34. If the upcoming Consumer Price Index (CPI) report shows higher-than-expected inflation, the likelihood of the Fed delaying rate cuts could push gold prices below this level. Furthermore, if the Fed’s dot plot indicates minimal or no rate cuts this year, gold could face additional downward pressure.

Federal Reserve Meeting and Projections

The Federal Reserve’s June meeting starts on Tuesday, with a policy decision expected on Wednesday. The Fed is widely expected to keep interest rates unchanged. However, economic projections are anticipated to show fewer rate cuts than previously expected due to persistent inflation. High interest rates reduce the attractiveness of non-yielding assets like gold, as investors prefer bonds and other yielding investments.

Treasury Yields and Investor Sentiment

U.S. Treasury yields fell on Tuesday as investors awaited the Fed’s policy decision and key economic data. The 10-year Treasury yield dropped four basis points to 4.4256%, while the 2-year Treasury yield fell to 4.8488%. Investors are closely watching the Fed’s guidance for any hints about future policy moves.

Market Forecast: Bearish Outlook

Considering the current strength of the U.S. dollar, the approaching CPI report, and the expected Fed stance on interest rates, the short-term outlook for gold remains bearish. If inflation data and Fed projections support a delay in rate cuts, gold prices are likely to break below the key support level of $2,277.34. Traders should stay vigilant and monitor these developments closely as they impact the gold market.

Technical Analysis

Daily Gold (XAU/USD)

XAU/USD’s intermediate trend continues to be controlled by the 50-day moving average, which is showing signs of flattening after providing support and direction since February 29. This makes $2344.03 the key level to watch today.

A sustained move under the 50-day MA will signal the presence of sellers. If this creates enough downside momentum then look for the selling to possibly extend into the last swing bottom at $2277.34. This is a potential trigger point for an acceleration to the downside with the next target bottom coming in at $2146.15.

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.

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