Gold Prices Forecast: Rate Cut Speculation Spurs XAU/USD to Record High

James Hyerczyk
Updated: May 20, 2024, 10:38 GMT+00:00

Key Points:

  • Gold reaches all-time high, driven by rate cut speculation.
  • Inflation data suggests downward trend, boosting rate cut hopes.
  • Treasury yields flat, U.S. Dollar edges lower as traders await Fed speakers and meeting minutes.
Gold Prices Forecast

In this article:

Gold Hits Record High as Rate Cut Bets Increase

Gold prices soared to a record high on Monday, driven by recent economic data bolstering expectations for interest rate cuts by the U.S. Federal Reserve. Traders are watching closely as the latest Fed monetary policy meeting minutes are set for release on Wednesday, which could significantly influence the market.

Atb 10:24 GMT, XAU/USD is trading $2441.215, up $26.50 or +1.10%.

Inflation Data Boosts Rate Cut Hopes

Last week’s U.S. inflation data revealed consumer prices rose less than anticipated in April, reinforcing the belief that inflation is on a downward trend. This data has fueled speculation that the Federal Reserve may cut interest rates as early as September. Lower interest rates tend to benefit gold by reducing the opportunity cost of holding non-yielding assets.

Market Reactions to Global Events

Despite recent geopolitical tensions, particularly the death of Iranian President Ebrahim Raisi, a potential successor to Supreme Leader Ayatollah Ali Khamenei, safe-haven demand for gold has not notably increased. Instead, the current rally appears more linked to economic factors, such as U.S. inflation trends and China’s measures to stabilize its property sector, which have broader implications for metals markets.

Treasury Yields and Fed’s Stance

U.S. Treasury yields remained steady on Monday as investors awaited further economic data and comments from Federal Reserve officials. Key data points this week include home sales figures and durable goods orders, alongside the Fed’s meeting minutes, which will provide insights into the central bank’s economic outlook and policy direction. The Fed has maintained that interest rates will not be cut until there is greater confidence in inflation easing to the 2% target.

The U.S. dollar edged lower as traders anticipated more clarity on the interest rate outlook. Despite the cooling inflation data, Federal Reserve officials have been cautious about predicting imminent rate cuts. Market expectations have adjusted accordingly, now pricing in a potential rate cut by November. The upcoming Personal Consumption Expenditures (PCE) price index report on May 31 will be a critical indicator for future Fed decisions.

Market Forecast

Given the current economic indicators and the anticipation of further dovish signals from the Federal Reserve, gold prices are likely to remain bullish in the short term. Traders should monitor upcoming economic data and Fed communications for cues on the timing and magnitude of potential rate cuts, which will be pivotal in shaping gold’s market movement.

Technical Analysis

Daily Gold (XAU/USD)

XAU/USD is hovering near the record high hit earlier in the session. A trade through the intraday high at $2450.125 will signal a resumption of the uptrend and bring the market closer to its near-term target at $2500.00.

The current uptrend is well-protected by the 50-day moving average at $2294.11 and the short-term swing bottom at $2277.34.

The focus is on sustaining the upside momentum. A higher-high, lower-close will be the first sign of a shift in momentu.

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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