Gold Prices Forecast: Fed’s Hawkish Stance Dims XAU/USD’s Luster

James Hyerczyk
Published: Sep 21, 2023, 07:04 GMT+00:00

Gold's (XAU/USD) appeal dampened by the Federal Reserve's hawkish signals, heightened Treasury yields and the U.S Dollar's surge.

Gold (XAU/USD)

In this article:


  • Gold prices dip as U.S. dollar strengthens.
  • Fed’s hawkish outlook offsets XAU/USD’s recent strength.
  • Central banks’ gold demand offers price support.

Fed’s Tightening, Dollar’s Rise Fuels XAU/USD Retreat

Gold (XAU/USD) prices faced a setback on Thursday as the U.S. dollar and bond yields surged. This surge was triggered by the Federal Reserve’s indication of an additional rate hike within the year and a decreased likelihood of policy easing till 2024. Spot gold (XAU/USD) slightly declined to $1,928.70 per ounce, while U.S. December Comex gold futures were down by nearly 1% at $1,948.40.

Wednesday’s Peak and the Aftermath

Just a day before, gold reached its peak since September 1st. However, the U.S. Fed’s revised economic outlook, emphasizing sustained higher rates, overshadowed this achievement. With this updated interest rate scenario, the market is exhibiting some nervousness. Yet, gold is attracting buyers, preventing a drastic plunge in its price.

Implications of U.S. Fed’s Hawkish Stance

The U.S. dollar index experienced a 0.4% boost, marking its highest since March 9. Concurrently, two-year Treasury yields escalated to a 17-year pinnacle. The Fed maintained its interest rates but delineated a more rigorous approach to tackle the inflation predicted to linger until 2026. This focus on higher interest rates tends to deter investors from non-interest-generating assets like gold.

Short-term Forecast: A Capped Upside for Gold

While gold traditionally serves as an inflation hedge, its charm fades when interest rates climb. This phenomenon is due to the increased allure of competing Treasury yields. Current indications suggest that gold’s upward trajectory may remain limited.

A more pronounced positive momentum for gold prices might only materialize if there’s a market consensus about declining global and U.S. interest rates, coupled with a weaker dollar. Moreover, central banks’ consistent demand for gold, as part of their diversification strategy, offers some support to its price.

Technical Analysis

4-Hour Gold (XAU/USD)

Gold (XAU/USD) trading above both the 200-4H and 50-4H moving averages, showcases a bullish short-term trend. These moving averages, specifically at 1919.35 and 1922.13 respectively, serve as immediate support levels.

If the commodity were to break below these points, it could signal a potential shift in market sentiment and trigger accelerated selling pressure. Conversely, remaining above these averages maintains a positive outlook.

Additionally, the RSI at 50.00 suggests a neutral market.

The proximity of the current price to these moving averages highlights the significance of their role as potential pivot points in the market. As always, it’s crucial for traders to monitor these levels closely, alongside other indicators and market news, to make informed decisions.

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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