Gold Prices Forecast: XAU/USD Jumps as Fed Hints at Rate Cuts Ahead of CPI Data

James Hyerczyk
Published: Jul 11, 2024, 11:36 GMT+00:00

Key Points:

  • Gold prices climb as traders anticipate softer inflation data, potentially influencing Fed's interest rate decisions for the rest of the year.
  • CME FedWatch tool shows markets now expect a 71% chance of a September rate cut, up from near-even odds a month ago.
  • Short-term gold outlook appears bullish, with prices potentially breaking $2,400 if CPI data comes in below expectations.
Gold Prices Forecast

In this article:

Market Sentiment Shifts on Powell’s Comments

Gold prices rose for the third consecutive session on Thursday, buoyed by a weaker U.S. dollar. Traders are closely watching upcoming inflation data, which will likely influence the Federal Reserve’s interest rate decisions for the rest of the year.

At 11:23 GMT, XAU/USD is trading $2382.48, up $11.16 or +0.47%.

Fed Chair Signals Potential Rate Cut

Federal Reserve Chair Jerome Powell’s recent congressional testimony has sparked renewed interest in gold. During his appearances before Senate and House committees, Powell indicated that the Fed is moving closer to a rate cut decision, while maintaining caution about declaring victory over inflation.

Inflation Data in Focus

The Consumer Price Index (CPI) report, due later today, is expected to show core inflation rising 0.2% month-on-month in June. Economists surveyed by Dow Jones forecast June’s headline CPI to reflect a 0.1% rise monthly and 3.1% annually, down from May’s 3.3% yearly increase. The Producer Price Index (PPI) follows on Friday. These reports are crucial for gauging the Fed’s next moves.

Market Expectations Shift

According to the CME FedWatch tool, markets are now pricing in a more than 71% chance of a Fed rate cut in September, a significant increase from the near-even odds a month ago. This shift in expectations has put pressure on the U.S. dollar, making gold more attractive to investors holding other currencies.

Treasury Yields and Dollar Performance

U.S. Treasury yields remained stable as investors await the inflation data. The dollar edged 0.2% lower against a basket of currencies, with traders hesitant to take new positions before the CPI report. The Fed’s 2% inflation target remains a key focus, with Powell suggesting that the central bank might not wait for inflation to reach this level before considering rate cuts.

Analyst Perspectives

Lukman Otunuga, senior research analyst at FXTM, noted that “Gold continues to shine on rising Fed rate cut bets following dovish comments by Powell during his congressional testimony.” Zain Vawda, market analyst at MarketPulse by OANDA, added that a softer-than-expected CPI could push gold above $2,400.

Market Forecast

The short-term outlook for gold appears bullish. If CPI data comes in softer than expected, gold prices could potentially break above the $2,400 mark. The current trend in monetary policy and sustained gold demand indicate the ongoing bull market in gold could persist.

Traders should closely monitor the upcoming inflation reports and any further comments from Fed officials for potential market-moving catalysts. The combination of a weakening dollar and potential rate cuts could provide further support for gold prices in the coming weeks.

Technical Analysis

Daily Gold (XAU/USD)

Gold prices show a strong uptrend, trading above both 50-day and 200-day moving averages. Recent price action indicate bullish momentum. The chart displays higher lows and higher highs, with potential for further gains towards the $2,450 level. Conversely, a failure to hold the 50-day MA at $2344.81 will signal the return of sellers, opening the door to a possible break into $2293.69 to $2277.34.

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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