Gold Prices Forecast: XAU/USD Steadies as Fed Rate Policy Decision Looms

James Hyerczyk
Published: Jan 31, 2024, 07:59 UTC

Investors are bracing for gold's response to the Fed's imminent rate decision, weighing both hawkish and dovish scenarios.

Gold Prices Forecast

In this article:

Key Points

  • Gold’s stability hinges on upcoming Fed rate decision.
  • Dollar index climbs, influenced by rate cut expectations.
  • Middle East conflicts impact gold market sentiment.

Market Anticipation Ahead of Fed Statement

Gold prices remained steady, poised for their first monthly decline in four months. Investors are recalibrating their expectations for aggressive U.S. rate cuts, given signs of a resilient economy. The focus is now on the Federal Reserve’s upcoming statement and Chair Jerome Powell’s news conference, which could significantly influence market movements.

At 07:41 GMT, XAU/USD is trading $2036.97, up $0.135 or +0.01%.

Reduced Expectations for Rate Cuts

Traders have moderated their bets on the Federal Reserve’s rate cuts for 2024, with the likelihood of a March rate cut now reduced. This shift in expectations follows strong U.S. economic data and signals from central bankers, suggesting a less dovish stance than previously anticipated.

US Dollar and Treasury Yields

The dollar index is tracking its best month since September, buoyed by the adjusted expectations on rate cuts. Concurrently, U.S. Treasury yields have dipped slightly this week but remain higher than at the year’s end, reflecting the market’s anticipation of the Fed’s monetary policy direction.

Middle East Tensions and Gold Market

Amidst these economic developments, the Middle East tensions, particularly the Israel-Hamas conflict and its expansion into a naval conflict in the Red Sea, have influenced the gold market. However, the possibility of a ceasefire in Gaza and the broader geopolitical landscape’s impact on gold prices remains uncertain.

Short-Term Market Forecast

In the short term, gold prices may continue to face pressure as the market adjusts to the Fed’s rate decision and the evolving geopolitical situation.

If the Fed adopts a hawkish stance, indicating fewer or no rate cuts, gold could face downward pressure due to a stronger dollar. Conversely, a more dovish Fed, signaling deeper rate cuts, could bolster gold prices as a hedge against potential currency devaluation.

The anticipation of less aggressive rate cuts by the Fed, coupled with ongoing Middle East tensions, suggests a cautious yet reactive outlook for gold in the near future.

Technical Analysis

Daily Gold (XAU/USD)

Gold (XAU/USD) is holding steady on below average volume early Wednesday, with most of the major players sitting on the sidelines ahead of the key Federal Reserve rate announcement at 19:00 GMT.

Nonetheless, bullion remains on the strong side of both the 50-day moving average at $2030.34 and the 200-day moving average at $1964.71.

The immediate support is the 50-day MA. Traders straddled this uptrending average since mid-month before decisively crossing to the bullish side earlier this week. If this move continues to generate enough upside mometum then we could see an acceleration into resistance at $2067.00.

Look for the near-term bullish tone to continue as long as prices hold above $2030.34. Crossing to the weak side of this level will signal the return of sellers. This could trigger a break into the pivot at $2009.00.

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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