Gold Prices Forecast: Focus Shifts to Economic Data Impact on Fed Policy

Gold Market Update

Gold prices remained steady on Thursday, with market attention focused on upcoming U.S. economic data that could influence the Federal Reserve’s next interest rate decision.

At 10:48 GMT, Gold (XAU/USD) is trading $2336.20, down $1.945 or -0.08%.

Currency and Bond Market Movements

The U.S. dollar hit a two-week high against major currencies, buoyed by a bond market rout that increased demand for safe-haven assets. A rise in long-term Treasury yields, driven by robust economic data and poorly received bond auctions, has pressured global equities and bolstered the dollar. Expectations for immediate Federal Reserve rate cuts have diminished amid stubborn inflation and rising consumer sentiment.

Economic Data and Fed Signals

Investors are increasingly expecting the Federal Reserve to maintain higher interest rates for an extended period, which raises the opportunity costs of holding non-yielding assets like gold.

On Thursday, the 10-year Treasury yield fell by 3 basis points to 4.594%, and the 2-year yield dropped to 4.966%. These movements come as traders await key economic indicators, including the personal consumption expenditures (PCE) price index, personal spending, income data, and the second estimate of the first-quarter GDP. The PCE price index, scheduled for release on Friday, is closely watched as the Federal Reserve’s preferred measure of inflation.

Impact of Hawkish Fed Rhetoric

Hawkish comments from Fed officials have adjusted market expectations, with fewer rate cuts anticipated in 2024. According to the CME FedWatch Tool, there’s a 48% chance of a rate cut by September. Revised U.S. GDP figures and weekly jobless claims data are due later today, which will be followed by the critical PCE price index data on Friday. Minneapolis Fed President Neel Kashkari has recently suggested that rate cuts may not occur soon, as persistent inflation demands more positive data before monetary policy easing.

Global Demand and Smuggling Concerns

Gold has seen strong demand due to geopolitical instability and economic uncertainty, with significant purchases by states bolstering prices. However, illegal gold smuggling from Africa, predominantly to the UAE, has surged. Swissaid reports that in 2022 alone, 435 tonnes of gold worth over $30 billion were smuggled out of Africa, with the UAE receiving 405 tonnes. Over the past decade, more than 2,500 tonnes valued at over $115 billion were smuggled to the UAE.

Market Forecast

Given the strong safe-haven demand for gold, coupled with geopolitical tensions and economic uncertainties, gold prices are likely to remain supported in the near term. However, the potential for higher-for-longer interest rates presents downside risks. Therefore, the market outlook for gold is cautiously bullish, pending further clarity from upcoming economic data.

Technical Analysis

Gold (XAU/USD) is trading flat-to-lower on Thursday, while hovering just above the 50-day moving average at $2324.11. This intermediate trend indicator has been providing support and direction since February 29 so crossing to the weakside of it could signal a major shift in sentiment.

Short-sellers and the triggering of sell stops could fuel a plunge in the market with $2277.34 the minimum downside target over the near-term.

On the upside, resistance is being provided by a short-term pivot at $2387.795.