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Gold Prices Forecast: XAU/USD Hits Record High Amid Powell’s Rate Cut Hints

By:
James Hyerczyk

XAU/USD soared, with gold futures rallying on Powell's dovish speech and a weak dollar, amid bullish trends and Fed rate decision anticipation.

Gold Prices Forecast

In this article:

Highlights

  • XAU/USD hits all-time high, influenced by Powell’s dovish tone.
  • Spot gold surpasses 2020 peak, futures at $2,089.7.
  • Market reacts to Powell’s speech; Treasury yields drop.
  • Fed’s December rate decision eyed, amid bullish gold forecasts.

Gold Market This Week: New Heights and Future Prospects

Gold (XAU/USD) prices reached an all-time high last week, propelled by remarks from Federal Reserve Chair Jerome Powell, which bolstered traders’ confidence that the U.S. central bank’s monetary policy tightening might be nearing an end. Bullish traders interpreted Powell’s speech as dovish with hints at the possibility of rate cuts starting as early as March next year.

All-Time High in Spot and Futures Gold Prices

Spot gold (XAU/USD climbed significantly by 3.4% over the week and surpassing the previous all-time high of $2,072.49 set in 2020. U.S. gold futures mirrored this trend, settling at a record peak of $2,089.7.

Weekly Gold (XAU/USD)

Inflation-Adjusted Highs and Monetary Policy Signals

However, these records are nominal. In real terms, considering inflation and dollar depreciation, gold’s peak was in 1980 at what would be today $3,452.40 an ounce. Powell, speaking in Atlanta, indicated that risks of under- and over-tightening are more balanced, but clarified that the Fed is not yet considering lowering rates.

Market Reaction to Powell’s Remarks and Treasury Yields

Market reactions to Powell’s comments were mixed. Treasury yields fell, with the 10-year yield dropping to 4.213% and the 2-year yield to 4.553%, despite Powell’s caution against anticipating aggressive rate cuts. He emphasized keeping policy restrictive until inflation is under control, while remaining open to further tightening if necessary.

Rate Decisions and Economic Indicators Ahead

The Fed’s next decision on rates is on December 13, with key data points like November’s jobs report and the consumer price index forthcoming. Markets, as per CME Group’s FedWatch tool, anticipate a high chance of interest rates remaining unchanged in December.

Dollar Weakness and Gold’s Prospects

The dollar weakened following Powell’s cautious stance on interest rate moves. This, combined with lower interest rates and a decrease in the dollar’s value, generally bolsters gold’s attractiveness. The U.S. dollar index dipped, potentially ending lower for a third consecutive week.

Weekly Forecast

Given the current trends, the outlook for gold in the upcoming week is bullish. The metal has been responding positively to the softened stance of the Fed and the weakening dollar. However, caution is warranted as gold has a history of prematurely pricing in monetary policy changes. The continued rally, also termed the “Santa Claus rally,” is expected to persist until year-end, barring any unexpected macroeconomic shifts.

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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