Gold (XAUUSD) Price Forecast: Strong Dollar Caps Upside, 2-Year Yield Offers Support

Gold Edges Lower as Traders Await Fed’s Inflation Gauge and Legal Battle Over Fed Independence

Gold prices dipped slightly on Wednesday, moving within Tuesday’s range as traders held back ahead of the U.S. Core PCE inflation report due Friday and the long Labor Day weekend. The yellow metal is under pressure from a firmer U.S. dollar and some profit-taking, following a two-week high hit in the previous session.

At 11:05 GMT, XAU/USD is trading $3376.97, down $16.78 or -0.49%.

Dollar Firms but Fed Independence in Question

The U.S. dollar index rose 0.4% Wednesday, weighing on gold by making the metal more expensive for holders of other currencies. Despite the greenback’s strength, concerns about the Federal Reserve’s independence persist. President Donald Trump’s move to fire Fed Governor Lisa Cook has triggered legal proceedings, raising investor anxiety about political interference in monetary policy.

Lisa Cook’s legal team confirmed Tuesday she will file a lawsuit to prevent her dismissal, potentially igniting a prolonged legal battle. Market participants are watching closely, as a successful ouster would significantly undermine the Fed’s credibility.

Yields Reflect Growing Rate Cut Bets

Bond markets are reacting sharply to the rising probability of a September rate cut. The two-year Treasury yield fell to 3.6540%—its lowest since May—indicating that traders are betting on imminent policy easing. Meanwhile, the 30-year yield ticked up to 4.9223%, reflecting long-term inflation concerns should rates be cut too early.

According to the CME FedWatch Tool, markets are currently pricing in an 87% probability of a 25 basis point cut at the Fed’s September 17 policy meeting. Gold, a non-yielding asset, typically benefits from lower interest rates as the opportunity cost of holding it decreases.

Gold Faces Pressure from Stronger Dollar and Weak Momentum

Technically, gold remains in a consolidation phase. A break above $3393.75 would resume the short-term rally, potentially targeting the August 8 high at $3409.43 and the July 23 peak at $3439.04.

On the downside, initial support lies at $3353.58, with stronger support at the 50-day moving average of $3346.70. A failure to hold that level could expose the market to further selling down to $3310.48.

Gold Prices Forecast: Bullish Bias Holds with Key Support Intact

Despite near-term softness from dollar strength and profit-taking, gold’s overall bias remains mildly bullish as long as prices hold above the 50-day moving average.

Legal uncertainty around the Fed’s governance and rising expectations of a September rate cut continue to support gold’s appeal as a hedge. A decisive move above $3393.75 could open the door to higher levels in the near term, especially if Friday’s inflation data reinforces the case for policy easing.

Traders should watch both the legal developments around Fed governance and the Core PCE data for confirmation.

More Information in our Economic Calendar.