Gold Prices Forecast: Fed’s Cautious Rate Cut Approach Spooking Traders

James Hyerczyk
Published: Feb 6, 2024, 07:37 UTC

Gold is near a two-week low amid a strong dollar, rising yields, and the Fed's delayed rate cut approach, signaling a bearish outlook for XAU/USD.

Gold Prices Forecast

In this article:

Key Points

  • Strong dollar and high yields pressure gold prices.
  • Fed officials’ remarks reduce early rate cut expectations.
  • Gold’s bearish trend influenced by economic indicators.

Gold Struggles Amid Strong Dollar and Yield Surge

Gold prices are currently hovering near a two-week low, primarily pressured by a robust U.S. dollar and rising Treasury yields. This trend follows a strong U.S. jobs report and Federal Reserve officials’ comments, which have significantly reduced expectations for early interest rate cuts.

At 07:10 GMT, XAU/USD is trading $2027.82, up $2.93 or +0.14%.

The dollar’s strength, particularly evident as it nears a three-month high, and the climb in 10-year Treasury yields to over a one-week high, are key factors influencing gold’s current performance.

Fed’s Stance and Impact on Gold

The Federal Reserve’s current stance, as indicated by recent remarks from officials including Minneapolis Fed President Neel Kashkari and Fed Chair Jerome Powell, suggests a cautious approach towards rate cuts.

This prudence, rooted in a resilient U.S. economy and potential adjustments in the neutral rate of interest, is leading to a reassessment of the timing for any potential rate reductions. Consequently, gold, typically a safe-haven asset, is facing downward pressure as traders adjust their expectations.

Short-Term Outlook: Bearish Amid Economic Strength

In the short term, the outlook for gold remains bearish. The combination of a strong dollar, higher Treasury yields, and reduced prospects for immediate Fed rate cuts are creating a challenging environment for gold.

Despite geopolitical uncertainties that could spur safe-haven demand, the prevailing economic indicators and Fed’s cautious stance are likely to keep gold prices subdued. Investors and traders will be closely monitoring upcoming remarks from Fed officials for further insights into the central bank’s policy direction and its implications for the gold market.

Technical Analysis

Daily Gold (XAU/USD)

Gold (XAU/USD) prices are in a state of flux as traders assess the impact of its crossing to the bearish side of the 50-day moving average. Technically, this means the intermediate trend has turned down, but sellers have yet to respond to this potentially bearish move with the customary acceleration to the downside.

We believe the acceleration is coming but we may not see it until we cross to the weakside of the support at $2009.00 or the psychological support at $2000.00. Our primary downside target is the 200-day moving average at $1965.64, it’s also the long-term trend indicator.

On the upside, recovering to cross to the strong side of the 50-day MA will signify the relience of the buyers. This could lead to a prolonged rangebound trade or a surge into the resistance at $2067.00.

Essentially, we’re treating the 50-day MA as our pivot today with a bias to the downside.

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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