Gold Prices Forecast: Traders Balancing Fed Cautiousness and Inflation

Gold Market Reacts to Fed Governor Waller’s Comments

Gold prices stabilized on Thursday as investors processed Federal Reserve Governor Christopher Waller’s statements on interest rates. Waller suggested the possibility of rate cuts later this year, emphasizing the importance of cautious moves in response to inflation data.

At 10:15 GMT, XAU/USD is trading $2198.66, up $3.795 or +0.17%.

Geopolitical Risks and Gold Prices

Geopolitical tensions, notably in Ukraine and the Middle East, continue to influence the gold market. These ongoing concerns contribute to gold’s status as a safe-haven asset, supporting its price stability.

Gold’s Current Trading Range

Gold has remained within a specific range for most of the month, trading inside $2146.00 to $2222.92. A break above this resistance level could potentially push prices towards the $2,300 mark. Downside risks are huge, however, with the 50-day moving average at $2080.00 a key target. This movement aligns with the market’s reaction to the Fed’s anticipation of three rate cuts in 2024.

Fed’s Rate Cut Strategy

Despite the Fed’s intention to reduce rates, Waller’s recent comments indicate a more cautious approach. He suggests holding the current rate due to inflation concerns, potentially extending this stance longer than expected to achieve a sustainable inflation trajectory.

Waller’s View on Rate Reductions

Waller does not completely dismiss rate cuts but implies they would be contingent on continued progress in lowering inflation. He indicates a strong economy allows the Fed to assess performance before making policy changes, possibly leading to fewer or delayed rate cuts.

Inflation and Rate Cut Expectations

Unexpectedly strong inflation raises doubts about the Fed’s ability to execute its forecasted rate cuts. The Fed, according to Waller, is balancing the risks of easing too soon, which might reignite inflation, against easing too late, potentially harming employment.

Short-Term Market Forecast: Cautiously Bullish

Given Waller’s cautious stance on rate cuts and the ongoing geopolitical risks, the short-term outlook for gold remains cautiously bullish. The possibility of delayed or reduced rate cuts, coupled with gold’s status as a safe haven amid global tensions, suggests a stable to slightly upward trajectory for gold prices in the near term.

Technical Analysis

XAU/USD continues to trend higher on Thursday with investors eyeing a test of the record high at $2222.915. There is no resistance beyond this level so prices could continue to soar.

On the downside, the recent price action has moved up short-term support to $2146.155. This is a potential trigger point for an acceleration to the downside with the 50-day moving average at $2056.70, the primary downside target.