Gold Prices Forecast: Stable as Fed and Inflation Move to Forefront

James Hyerczyk
Published: Jun 10, 2024, 11:18 GMT+00:00

Key Points:

  • Gold prices steadied Monday after Friday's sharp drop due to weak Chinese demand and U.S. data. Speculators reassess rate cut and demand prospects.
  • Bullion fell $83, or 3.5%, Friday after strong U.S. jobs data and PBOC halting gold purchases. This pause creates market uncertainty about future gold demand.
  • Gold faces potential sideways trading without clear signals from the Federal Reserve or significant data updates. Investors closely monitor CPI and Fed announcements.
Gold Prices Forecast

In this article:

Gold Prices Steady After Major Sell-Off

Gold prices stabilized on Monday following the most significant drop in three-and-a-half years last Friday. This sharp decline was triggered by disappointing economic data from China and the U.S., which affected speculators’ expectations regarding Chinese demand and the likelihood of an interest rate cut by the Federal Reserve.

At 11:02 GMT, XAU/USD is trading $2299.81, up $5.795 or +0.25%.

Impact of U.S. Jobs Report and China’s Central Bank

On Friday, bullion dropped about $83, marking a 3.5% decline, the largest since November 2020. A stronger-than-expected U.S. jobs report diminished hopes for a rate cut in September. Additionally, news that China’s central bank, the People’s Bank of China (PBOC), halted its gold purchases further dampened investor sentiment. The PBOC’s purchasing pattern has historically been sporadic, leading to uncertainty in the market when they pause their buying.

Market Sentiment and Expectations

Friday’s dramatic market movement is unlikely to be repeated this week unless significant surprises emerge from upcoming CPI data or Federal Reserve announcements. The medium-term bullish trend in gold, evident until last week, now faces potential technical damage. The market’s focus has shifted to the U.S. consumer inflation report, due on Wednesday, coinciding with the Fed’s policy decision.

Federal Reserve Rate Cut Bets Decrease

The probability of a Federal Reserve rate cut in September has fallen to around 50% from 70% before the jobs data release. Despite this, some analysts expect the Fed’s median “dot plot” to indicate two rate cuts in 2024, down from three previously forecasted. Inflation is still expected to moderate, although a September cut remains a possibility.

Upcoming U.S. Inflation Data and Fed Meeting

The U.S. inflation data set to release on Wednesday is anticipated to show cooling headline inflation. However, core inflation might remain high enough to dissuade the Federal Reserve from cutting rates soon. Fed Chair Jerome Powell’s comments and the updated economic projections will be closely watched for further market direction.

Market Forecast: Cautious Outlook for Gold

In the short term, the outlook for gold appears cautious. The recent sell-off has shaken confidence, and without a clear signal from the Federal Reserve or significant changes in economic data, gold prices are likely to trade sideways. Investors should remain vigilant for any updates from the CPI data and Fed announcements that could influence market sentiment and potential price movements.

Technical Analysis

Daily Gold (XAU/USD)

Despite today’s early gains, XAU/USD remains in a weak position, trading on the bearish side of the 50-day moving average at $2343.32, which is new resistance.

The nearest downside target is the swing bottom at $2277.34. This is a potential trigger point for an acceleration into the next swing bottom target at $2146.15.

With the 200-day moving average coming in at $2093.02 and the current price under the 50-day moving average, the market remains vulnerable to further downside pressure.

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.