Gold Prices Forecast: Weekly Loss Fueled by Stubborn Inflation, Fed Expectations

Gold Prices Respond to Inflation and Fed Policy Speculation

This week’s inflation reports have influenced gold prices, leading to a notable weekly drop for the first time in a month although the market is edging higher on Friday.

At 11:18 GMT, XAU/USD is trading $2166.75, up $4.55 or +0.21%.

Impact of Inflation Data

Gold, an asset that typically doesn’t yield returns, is currently under pressure due to higher-than-expected inflation rates. The U.S. Consumer Price Index (CPI) showed a 3.2% year-over-year increase, while the Producer Price Index (PPI) recorded a 0.6% monthly rise. These figures suggest that the Federal Reserve might maintain elevated interest rates, reducing the attractiveness of gold.

Gold’s Market Outlook

Despite the current downward trend, gold’s prospects for 2024 remain positive, supported by consistent investment and safe-haven demand. Recent profit-taking and market corrections, along with a rebound in the dollar index following strong U.S. economic data, have contributed to gold’s weekly decline.

Investor Sentiment Following Inflation Reports

With inflation rates surpassing forecasts, investors are recalibrating their expectations around the Federal Reserve’s monetary policy. The anticipation around the timing of interest rate reductions adds to the market’s unpredictability. As the Federal Reserve’s next meeting approaches, market participants are keenly observing indicators like the CPI and PPI.

Rate Cut Expectations and Dollar Strength

The probability of a rate cut in June, previously higher, has been adjusted to around 59% following the inflation data. Concurrently, the U.S. dollar index is on track for its most substantial weekly increase since January, potentially making gold more costly for international buyers. Upcoming consumer sentiment and trade price reports are also on investors’ radar.

Short-Term Market Forecast

The immediate outlook for gold prices leans towards a bearish trend due to the strengthening dollar and the likelihood of sustained high-interest rates. Nonetheless, the enduring demand for gold as an investment and a safe-haven asset offers a stable base for its value. Market movements will be heavily influenced by upcoming monetary policy decisions and inflation-related data, which traders should monitor closely.

Gold is in an uptrend, but the current consolidation slightly below its all-time high at $2195.24 suggests it’s at a critical juncture.

On the upside, a trade through $2195.24 will reaffirm the uptrend, but will there be sufficient buyers returning to sustain the move?

On the downside, this week’s low at $2166.50 could be the trigger point for an acceleration. Although this move will not signal a change in trend, it could inflict some serious damage on the chart with plenty of room to the downside and the 50% level at $2089.77 a potential target.