Gold Prices Forecast: Fed Rate Cut Speculation Boosts XAU/USD

Gold Market Update

Gold prices experienced an uptick on Monday, propelled by expectations that the U.S. Federal Reserve may initiate interest rate cuts as early as June, combined with a weakening dollar. These factors have heightened gold’s attractiveness. Despite this, the rise in U.S. Treasury yields exerted pressure, preventing gold from reaching higher intraday values.

Treasury Yields and Economic Data

U.S. Treasury yields saw a modest increase, with investors’ attention turning to forthcoming economic reports expected this week. These reports are anticipated to offer insights into the economy’s current state. Particularly, the Federal Reserve’s indication of potential rate cuts, contingent on economic trends, is a focal point.

Fed Chairman’s Statement and Dollar Influence

Fed Chairman Jerome Powell suggested the current policy rate might be at its peak, hinting at possible policy easing later this year. Nonetheless, he underscored the uncertainty of the economic outlook and the non-guaranteed progress towards a 2% inflation target. Concurrently, a slight dip in the dollar’s strength against other currencies has made gold more accessible for holders of various currencies.

Market Anticipation and Rate Cuts

The market is positively inclined towards precious metals, anticipating imminent rate cuts from the Fed. The probability of a rate reduction starting in June is currently high. A recent surge in gold prices to record highs further indicates market expectations aligning with the Fed’s projection of three rate cuts by the end of 2024.

Interest Rates and Bullion Costs

Lower interest rates typically decrease the opportunity cost of holding gold, enhancing its appeal. Traders now assign a 74% chance of a rate cut in June. Upcoming data, especially the U.S. core personal consumption expenditure (PCE) price index due on Friday, could influence these projections. However, with many markets closed for Good Friday, a full market response may only be observed the following week.

Vulnerable to Technical Breakdown

Spot gold could potentially breach a support level of $2,146.00, leading to a possible retreat to a 50% level at $2,103.60. Key economic reports, including the Fed’s favored inflation measure and other significant data, could significantly influence investor sentiment.

Market Reaction and Fed Officials’ Remarks

Market responses to these data releases may remain unclear until next week, considering the closure of bond markets for Good Friday. Statements from Federal Reserve officials, including Powell, along with various economic reports, will be closely monitored for further market direction.

Short-Term Market Forecast

In the short term, the gold market exhibits a bullish trend, supported by the anticipation of Federal Reserve rate cuts and a softer dollar. However, it’s crucial to note the market’s vulnerability to downside risks. Should gold prices break through the support level at $2,146.00, we could see a downturn towards the $2,103.60 mark. Additionally, the market trends from last week indicate potential capitulation, suggesting a pivot in investor sentiment and market direction. This aspect should be carefully monitored by traders, as it could signal a shift from the prevailing bullish trend to a more cautious or bearish outlook. As always, upcoming economic data and Fed commentary will be key determinants in the market’s movement, warranting close attention from investors and traders alike.

Technical Analysis

Gold (XAU/USD) is edging higher on Monday, while hovering just above minor support at $2146.15.

Current minor resistance is $2184..54. Overtaking this will indicate the presence of buyers with $2222.92 the next potential upside target.

A failure to hold $2146.15 will be a sign of weakness. If this creates enough downside momentum, we could see an acceleration to the downside with the next potential target $2103.60, followed by the uptrending 50-day moving average at $2070.15.