Gold Prices Forecast: Fed’s Rate Cut Outlook Dampens XAU/USD’s Shine

James Hyerczyk
Published: Jan 22, 2024, 07:10 GMT+00:00

Gold prices fall amid Fed's cautious stance and robust US economy data, signaling a bearish short-term outlook for XAU/USD.

Gold Prices Forecast

In this article:

Key Points

  • Gold prices fall amid upcoming US economic data
  • Fed’s rate cut delay impacts gold market sentiment
  • Bearish short-term forecast for XAU/USD prices

Gold Prices Lower

Gold prices are down on Monday, as traders adopt a cautious stance ahead of key U.S. economic data and the Federal Reserve’s inflation gauge, both set to be released later this week. These releases are crucial precursors to the Fed’s interest rate decision next week.

At 06:57 GMT, Gold (XAU/USD) is trading $2020.92, down $8.71 or -0.43%.

Federal Reserve’s Rate Cut Outlook

Recent statements from Fed officials suggest a need for more inflation data before considering rate cuts, with expectations for cuts starting in the third quarter. This follows positive U.S. consumer sentiment and robust labor market and retail sales data, indicating a stable economy. Consequently, the likelihood of a March rate cut has decreased significantly.

Dollar and Treasury Yields Fluctuations

The U.S. dollar index saw a slight decline, while yields on U.S. 10-year Treasury notes also fell from recent highs. Upcoming U.S. flash PMI reports and GDP estimates are likely to influence these trends further. A higher PCE inflation could strengthen the dollar and limit gold’s upside potential.

Global Central Bank Decisions and Currency Movements

The market is also closely monitoring central bank decisions in Japan and Europe. The yen showed notable movement in quiet trading, influenced by the Bank of Japan’s meeting and large currency option expiries. The dollar’s performance remains tentative, reflecting market uncertainty about the Fed’s rate cut timeline.

Short-Term Forecast: Bearish Outlook

In the short term, the outlook for gold prices leans bearish, primarily driven by the evolving landscape of Federal Reserve rate cut expectations.

The recent shift in market sentiment, influenced by robust U.S. economic indicators, suggests a delay in the anticipated rate cuts, potentially extending into the third quarter. This delay, underscored by Atlanta Fed President Bostic’s comments and the lowered probability of a March rate cut, diminishes the immediate appeal of gold as a hedge against rate decreases.

Additionally, the slight dip in Treasury yields, while indicative of some market caution, does not offset the broader expectation of a stronger dollar in the face of delayed rate cuts. Consequently, these factors collectively point towards a constrained upside potential for gold in the near term.

Technical Analysis

Daily Gold (XAU/USD)

Gold (XAU/USD) is currently trading at $2021.20, hovering just below the 50-day moving average of $2021.50, indicating a neutral to slightly bearish sentiment in the short term. This positioning near the 50-day average suggests a potential pivot point for future price movements.

The asset is also trading above the 200-day moving average of $1963.65, which could provide a strong support level in case of a downward trend.

The current price is situated between the minor support at $2009.00 and minor resistance at $2067.00, indicating a consolidation phase. If the price breaks above the minor resistance, it could lead to a bullish momentum towards the main resistance at $2149.00. Conversely, a drop below the minor support might see the price testing the main support at $1952.21.

Overall, the market sentiment for Gold appears cautiously optimistic, with potential for both upward and downward movements based on upcoming price actions around these key technical levels. However, a sustained move under the 50-day moving average will change the intermediate trend to down with the 200-day the next likely 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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