Gold Prices Forecast: Investors Eye Fed Comments on Rate Cuts

James Hyerczyk
Updated: Jun 17, 2024, 19:27 GMT+00:00

Key Points:

  • Gold prices decline due to firm U.S. dollar and rising Treasury yields. Investors await Fed comments on potential rate cuts.
  • Minneapolis Fed President Kashkari suggests a possible rate cut in December, pending further economic data and inflation evidence.
  • Global factors, including political turmoil in France and economic challenges in China, contribute to risk-off sentiment, impacting gold demand.
Gold Prices Forecast

In this article:

Gold Slips as Investors Await US Rate Cut Clues

Gold prices fell on Monday, pressured by a firm U.S. dollar and rising Treasury yields, as investors looked ahead to key economic data and Federal Reserve comments for insights on the timing of potential rate cuts.

At 10:27 GMT, XAU/USD is trading $2321.96, down $10.685 or -0.46%.

Fed’s Rate Cut Outlook

Gold’s decline is largely attributed to investor caution following hawkish comments from Federal Reserve officials over the weekend. Minneapolis Federal Reserve President Neel Kashkari stated it is a “reasonable prediction” that the Fed might cut interest rates once this year, likely in December. Kashkari emphasized the need for more evidence to confirm that inflation is on track to return to the Fed’s 2% target.

The Fed held its benchmark policy rate steady at 5.25%-5.50% last week, maintaining pressure on the economy to cool inflation. The central bank’s projections indicate a single rate cut this year, aligning with Kashkari’s cautious outlook. Kashkari noted the importance of additional economic data before making any decisions, highlighting the strong performance of the U.S. job market despite previous rate hikes.

Treasury Yields and Dollar Impact

U.S. Treasury yields ticked higher on Monday, reflecting market sentiment following Kashkari’s comments. Higher yields and a stronger dollar make gold less attractive by increasing the opportunity cost of holding non-yielding bullion. The Fed’s cautious stance and the requirement for more inflation data before rate cuts further supported this uptick in yields.

Economic Data and Market Reaction

Upcoming economic data will be crucial in shaping market expectations. May retail sales figures are due on Tuesday, followed by housing data later in the week. These indicators will provide insights into the health of the U.S. economy and potential shifts in the Fed’s policy stance.

Data published last week showed some cooling in labor market and price pressures, hinting at potential economic weakness. This could weaken the U.S. dollar and bolster expectations for future rate cuts, providing support for gold prices.

Global Factors

Global risk factors, including political turmoil in France and economic challenges in China, also influence gold prices. China’s industrial output missed forecasts in May due to a property market slump, high local government debt, and deflationary pressures. These global uncertainties contribute to a risk-off sentiment, which can drive demand for safe-haven assets like gold.

Market Forecast

In the short term, gold prices are likely to face downward pressure due to the firm U.S. dollar and rising Treasury yields. However, persistent hopes for a Fed policy pivot and emerging signs of economic weakness could eventually support a bullish outlook for gold. Traders should monitor key economic data and Fed communications closely, as these will be pivotal in determining gold’s movement.

Technical Analysis

Daily Gold (XAU/USD)

Although gold is exhibiting some short-term upside pressure after closing higher last week, it is stil facing headwinds at the 50-day moving average at $2344.72.

Prices could firm on a sustained move over the 50-day MA with $2387.80 a potential trigger point for an upside breakout. The trigger point for an acceleration to the downside is the swing bottom at $2277.34.

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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