Gold Prices Forecast: PPI, Fed Rate Cut Expecations to Impact XAU/USD

Key Points

• Gold declines for second week due to inflation concerns.
• U.S. economic data influences gold’s short-term bearish outlook.
• Fed’s rate decisions crucial for future gold price movements.

Current Performance

Gold is set for its second consecutive weekly decline. The unexpected increase in U.S. consumer prices has led traders to reassess their expectations for rate cuts. Despite this, gold recovered some losses after a decline in consumer spending. On Thursday, gold prices rose due to softer U.S. economic data, which weakened the U.S. dollar and Treasury yields. The market’s attention is now on Federal Reserve officials for hints on interest rate cut timelines.

At 08:00 GMT, XAU/USD is trading $2005.24, up $0.84 or +0.04%.

Key Data and Trends

A significant drop in U.S. retail sales in January contributed to gold’s recovery on Thursday, marking the largest month-on-month decline since February 2023. Unemployment claims also decreased, pointing to a stronger job market. The weakening dollar and lower Treasury yields have made gold more attractive to international buyers. However, gold’s short-term movement is heavily influenced by interest rate expectations. With recent data indicating persistent inflationary pressures, gold faces potential short-term pressures until the Federal Reserve indicates readiness for rate cuts.

Federal Reserve Outlook

Fed policymakers are now expected to delay rate cuts until at least June, influenced by recent inflation data. Fed officials have expressed varied opinions on the rate cut timeline, suggesting a cautious approach to returning to 2% inflation. The market anticipates steady interest rates at the next Fed policy meeting, with rate cuts projected later in the year.

Market Forecast

Given the current economic indicators and the hawkish stance of Fed officials, gold’s near-term outlook appears bearish. Key factors such as ongoing inflation concerns, potential dollar strength, and the lack of immediate catalysts for a bullish gold market suggest a cautious approach. Investors are advised to watch the upcoming producer price index data (PPI) and further commentary from Fed officials for additional market direction.

Technical Analysis

Gold (XAU/USD) is edging higher on Friday as traders try to claw back some of this week’s earlier losses. Nonetheless, traders will face minor resistance at $2009.00 before even attempting to surge into the more important 50-day moving average at $2030.37.

On the downside, look for the selling pressure to increase if $1984.30 fails as support with the 200-day moving average at $1965.27 the primary target.