Gold Price Forecast: Facing Worst Week Since February as Confidence in US Debt Deal Rises

Gold Highlights

• Gold prices edge higher as dollar weakens, but weekly decline expected.
• U.S. debt deal optimism weighs on gold prices.
• Hawkish Fed stance, potential interest rate hike pressures gold. 

Gold Overview

Gold (XAU) prices are edging higher on Friday as the dollar weakened slightly, making it more affordable for holders of other currencies. However, despite this temporary uptick, gold prices are expected to decline for the week due to growing optimism surrounding a potential U.S. debt limit deal.

At 14:00 GMT, Gold (XAU) is trading $1959.93, up $1.45 or +0.07%. The SPDR Gold Shares ETF (GLD) is at $182.10, up +$0.26 or +0.14%.

Dollar Index Slips, Boosting Gold

The dollar index, which measures the value of the dollar against a basket of other currencies, slipped 0.3% on the day, providing some support for gold. Nonetheless, the index is on track for a second consecutive weekly gain. As a result, gold is set to experience its worst week since early February, with a decline of approximately 2.3% so far.

Gold Prices Post Weekly Drop

The decline in gold prices this week can be attributed to increasing confidence in a U.S. debt deal. Democratic Party negotiators informed President Joe Biden on Friday that progress is being made in discussions with Republicans to avoid a U.S. default. This positive news has diminished the appeal of gold as a safe-haven investment, leading to its fall below the psychologically-important $2,000 level.

XAU Retreats from Recent Highs

Earlier this month, gold reached a high of $2,072.19, coming close to its all-time high of $2,072.49. However, it has since experienced a decline of around 5% due to data indicating a tight labor market and persistently high inflation.

Fed Hawkish Stance Pressures Gold

Furthermore, recent statements from Federal Reserve officials expressing a hawkish stance, coupled with resilient U.S. economic data, have increased market expectations of a potential interest rate hike in June. Higher interest rates tend to discourage investment in non-yielding assets like gold.

On Thursday, the latest comments from Fed officials reinforced the hawkish sentiment by highlighting that inflation was not cooling down rapidly enough to warrant a pause in the interest rate hike campaign. These factors have contributed to the downward pressure on gold prices.

Gold (XAU) Projected to Slide Further

Based on the current market dynamics, gold is projected to potentially slide further, entering a range of $2,002.54 to $1,923.06 per ounce. However, it’s important to note that short-term forecasts are subject to various factors and market volatility, so investors should stay updated and monitor the evolving situation closely.

Technical Analysis

Gold (XAU) is trading on the bearish side of the pivot at $2002.54, putting it in a weak position.

The failure to hold $2002.54 should lead to increased selling pressure.  Look for the selling to possibly extend into $1956.30 (S1) over the near-term if this generates enough downside momentum.

$1956.30 (S1) is the next potential trigger point for an acceleration to the downside with $1923.06 (S2) the next target.

Regaining $2002.54 will indicate the return of buyers. The first upside target is (R1) at $2035.78. Overtaking this level will indicate the buying is getting stronger with the next major target (R2) at $2082.03.