Gold Prices Forecast: Struggling as Dollar Strengthens, Treasury Yields Soar

Key Points

• Strong dollar and high Treasury yields cap gold’s rise.
• Fed’s cautious rate cut approach weighs on gold prices.
• Large speculators’ gold liquidation hints at further price drop.

Bullish Catalysts Absent

Gold prices, currently facing downward pressure, lack significant bullish catalysts, suggesting a potential capping of prices in the near term. The confluence of a strong U.S. dollar, rising Treasury yields, and Federal Reserve policies are contributing to a challenging environment for gold’s upward movement.

At 06:46 GMT, XAU/USD is trading $2030.15, down $9.60 or -0.47%.

Lacking Bullish Drivers

The absence of robust drivers for a gold rally is evident. Despite the historically inverse relationship between gold prices and the U.S. dollar, the latter’s strength, particularly after the positive jobs report, is dimming gold’s appeal. Furthermore, the surge in Treasury yields, a reflection of investor sentiment on economic resilience, is diverting attention from gold as a safe-haven asset.

Fed’s Hawkish Outlook

The Federal Reserve’s hawkish outlook, underscored by Chair Jerome Powell’s recent comments, is dampening the prospects of significant rate cuts. This scenario is reducing the allure of gold, which thrives in low-interest rate environments.

Speculator Liquidation and Support Breakdown

Notably, data indicates that money managers and large speculators have been reducing their long positions in gold futures, signaling a shift in market sentiment. This trend of liquidation, if it persists, could lead to a breakdown in key support levels for gold prices.

Short-Term Market Forecast

In the absence of positive catalysts and with mounting negative factors, the gold market may face further challenges. Should current trends continue, particularly with the liquidation by key market players, we could witness a more pronounced decline in gold prices, potentially testing lower support areas around $1965.00 to $1950.00. The upcoming economic reports, especially those related to inflation, will be crucial in shaping the short-term direction of gold prices.

Technical Analysis

Gold (XAU/USD) is drifting lower on Monday after crossing to the weakside of the 50-day moving average at $2033.27. This indicates a slight shift to the downside in the momentum of the intermediate trend. With the market straddling this moving average for two-weeks, it has all the characteristics of a pivot.

A sustained move under the 50-day MA will indicate the presence of sellers. If this creates enough downside momentum then look for a test of the static support at $2009.00. This could be the trigger point for an acceleration into the 200-day moving average at $1965.48.

Recovering the 50-day MA will breath a little life into the gold market, but until it can overcome the static resistance at $2067.00, it’s likely to remain rangebound.

The daily chart indicates the way of least resistance as down, based on the distance between the current price at $2030.15 and the long-term support at $1965.48.