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Gold Prices Forecast: Fed Rate Cut Delay, Technical Resistance Capping Gains

By:
James Hyerczyk
Updated: Jun 13, 2024, 23:30 GMT+00:00

Key Points:

  • Spot gold retreats as the Fed indicates only one interest rate cut this year, impacting market sentiment.
  • Fed maintains rates at a 23-year high, with a cautious stance on inflation, affecting gold prices.
  • Gold expected to trade choppy as traders seek clarity on the timing of Fed's rate cuts.
Gold Prices Forecast

In this article:

Gold Retreats as Fed Maintains Rate Outlook

Spot gold retreated on Thursday following the Federal Reserve’s decision to indicate only one interest rate cut this year, diverging from the three rate cuts projected in March. Despite this shift, inflation remains elevated, influencing the Fed’s cautious stance.

At 09:42 GMT, XAU/USD is trading $2315.36, down $9.67 or -0.42%.

Fed Holds Rates Steady

The Federal Reserve left its federal funds rate target range unchanged at a 23-year high of 5.25%-5.50% for the seventh consecutive policy meeting in June. Policymakers reiterated that easing monetary policy would not be appropriate until there is greater confidence that inflation is moving sustainably toward the 2% objective. The Fed maintained its GDP growth forecasts, projecting a 2.1% expansion in 2024 and a 2% growth in 2025 and 2026.

Inflation Projections Adjusted

The central bank revised its core PCE inflation forecasts upward to 2.8% in 2024, from 2.6% in March, and to 2.3% in 2025, from 2.2% previously projected. Meanwhile, annual headline consumer inflation in the United States unexpectedly eased to 3.3% in May from 3.4% in April, with annual core CPI inflation slowing to a more than three-year low of 3.4% in May from 3.6% in April. This tamer CPI print was a net positive for gold, but the reduced number of rate cuts in 2024 remains a key takeaway.

Impact on Gold Prices

Despite the inflation easing, the Fed’s decision to delay rate cuts has put downward pressure on gold prices. The market now anticipates that rate cuts will not begin until late 2024, with the first possible reduction pushed out to December. Higher borrowing costs typically dampen economic growth, which can also limit demand for commodities like gold.

Market Forecast

In the short term, gold is expected to trade in a choppy, rangebound fashion as traders await greater clarity on when the first rate cut from the Fed may occur.

Given the current economic indicators and the Fed’s cautious approach, gold prices are likely to experience volatility. However, if inflation continues to ease and the economic outlook remains stable, gold may find some support.

For now, the outlook remains bearish until there is a definitive signal from the Fed regarding the timing of rate cuts. Technically, XAU/USD remains vulnerable to the downside until buyers can overcome the 50-day moving average.

Technical Analysis

Daily Gold (XAU/USD)

XAU/USD is easing on Thursday, hovering just below the key 50-day moving average at $2345.23.

Overcoming the 50-day MA will signal the return of buyers, with $2387.79 as a potential trigger point for an upside breakout.

A sustained move under the 50-day MA will indicate sellers are defending the upside, making the market vulnerable to a near-term test of the swing bottom at $2277.34. This could trigger an acceleration to the downside with $2146.15 as a possible target.

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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