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Gold Prices Forecast: XAU/USD Slides on Fed’s Hawkish Tone

By:
James Hyerczyk

Gold prices decline for a second week amid a stronger dollar and Powell's hawkish interest rate stance, signaling a bearish outlook for XAU/USD.

Gold Prices Forecast

In this article:

Highlights

  • Gold prices fall amid dollar strength, yield increase.
  • Fed Chair Powell’s remarks fuel bearish gold trend.
  • Rising Treasury yields, dollar gains pressure XAU/USD market.

Gold’s Downward Trend

Gold (XAU/USD) prices are set for a second week of declines, impacted by a stronger U.S. dollar and increasing Treasury yields. Spot gold dipped slightly, reaching its lowest since October 18, while U.S. gold futures declined by 0.4% to $1,961.60. This week’s drop marks gold’s largest weekly fall in over a month, with a 1.8% decrease.

Fed’s Hawkish Stance

The bearish trend in gold prices is partly attributed to Federal Reserve Chair Jerome Powell’s hawkish remarks, suggesting ongoing concerns about inflation and interest rates. The Fed’s recent meeting left rates unchanged, but Powell’s comments hinted at the possibility of further rate hikes, stirring uncertainty among investors about the duration of high rates and potential recession risks in the U.S. economy.

Impact of Treasury Yields

Following Powell’s remarks, the 10-year U.S. Treasury yield rose significantly, diminishing the appeal of non-yielding gold. The yield increases across various Treasury bonds, including a notable rise in the 2-year and 30-year Treasury yields, came after a Treasury auction witnessed weak demand, indicating a shift in investor sentiment.

Dollar Strength and Gold’s Outlook

The dollar index is on track for its largest weekly gain in two months, making gold more costly for holders of other currencies. The anticipation of further rate hikes by the Fed and the resultant higher opportunity cost of holding gold, which yields no interest, contribute to the metal’s bearish short-term outlook.

Technical Analysis

Daily Gold (XAU/USD)

The current daily price of gold (XAU/USD) at 1955.730 is holding its minor support level at 1952.210, suggesting a potential stabilization in the short term.

It is, however, trading below both the 200-day and 50-day moving averages, at 1934.785 and 1923.595 respectively, indicating a broader bearish trend.

The price is also under the minor resistance of 1987.00 and well below the main resistance at 2009.00, reinforcing the bearish sentiment.

This positioning, combined with the asset’s location relative to the moving averages, points towards a cautious, bearish outlook in the market for gold.

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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