Gold Prices Forecast: Fed’s Decision Key to Near-Term Market Trend

Gold Market Outlook: Central Bank Decisions Ahead

Gold is trading lower at the start of the week. Key to this movement is the unwavering position of the dollar and the upcoming policy decisions from global central banks, notably the U.S. Federal Reserve.

At 09:54 GMT, XAU/USD is trading $2154.435, down $1.575 or -0.07%.

Federal Reserve’s Rate Stance

Expectations are set for the Fed to keep interest rates unchanged at 5.25%-5.5%. The persisting high levels of inflation at consumer and producer tiers suggest that the Fed might favor a prolonged period of high rates. This scenario typically dampens gold’s attractiveness as it bears no interest.

Influence of Inflation Data

Recent U.S. inflation data revealed significant increases in consumer and producer prices, driven primarily by higher costs of basic goods. If the Fed’s decision leans towards less aggression, it could weaken the dollar and decrease yields, potentially igniting a rally in gold prices, potentially reaching levels around $2,200. A more hawkish Fed could drive prices into a $2089.77 to $2064.87 retracement zone.

Central Bank Meetings and Dollar Trends

This week is pivotal due to key meetings of central banks, including the Bank of Japan and the Bank of England. The steady position of the dollar, at a two-week peak, adds to gold’s expense for holders of other currencies. Market expectations now suggest a 72 basis points reduction in rates this year, with a 56% probability of the initial cut occurring in June.

Fed’s Rate Cut Projections

Traders are keenly observing whether the Fed will modify its rate cut forecasts. Current projections indicate a total of 75 basis points reduction in 2024. The recent inflation figures might prompt the Fed to adopt a more watchful approach. A signal from the Fed indicating an extension in the current rate levels could exert further pressure on gold prices.

Short-Term Gold Forecast

For gold traders, the immediate outlook seems bearish. The likelihood of the Fed sustaining elevated interest rates, combined with a robust dollar, is expected to continue weighing on gold prices in the near term. Traders should prepare for potential fluctuations tied to the central bank decisions and economic data releases.

Technical Analysis

Gold (XAU/USD) is edging lower on Monday as weakness mounts for a third straight sesssion. Although the market isn’t close to changing the intermediate and long-term trends lower, XAU/USD is vulnerable to a near-term sell-off with $2089.77 to $2064.87 the target zone. Additional support is the 50-day moving average at $2056.61.

On the upside, a trade through $2195.235 will signal a resumption of the uptrend.