Gold Price Forecast: Hawkish Remarks from Global Central Banks Capping Gains

Highlights

• Gold rises as investors brace for more rate hikes to combat inflation
• Wave of hawkish remarks from global central banks
• Market pricing in 83.7% chance of 25 basis-point Fed hike in May

Overview

Gold (XAU) is inching higher on Thursday, mirroring the steady price action in U.S. Treasury bonds and the U.S. Dollar. After hitting a more than two-week low in the previous session, investors are now grappling with the likelihood of more interest rate hikes by the global central banks to contain inflationary pressures.

At 06:35 GMT, Gold (XAU) is trading $1997.02, up $3.24 or +0.16%. On Wednesday, the SPDR Gold Shares ETF (GLD) settled at $185.36, down $0.89 or -0.48%.

Despite a dip below $1,980 yesterday, Gold (XAU) investors swiftly took advantage of the discounted price and pushed spot gold back above this crucial support level.

However, gains were capped as investors remain vigilant as U.S. Federal Reserve members are expected to maintain a hawkish stance leading up to Saturday’s blackout period before the Fed’s upcoming meeting.

Inflation Concerns Rise as Fed Eyes Rate Hike in May

On Wednesday, New York Fed President John Williams stated that inflation remains problematic and that the Fed will take action to address it.

According to the CME FedWatch tool, the market is pricing in an 83.7% chance of a 25 basis-point hike in May. Such rate increases increase the opportunity cost of holding non-interest-bearing assets such as gold.

A Reuters poll suggests that the Fed will implement a final 25-basis-point rate hike in May and then maintain interest rates for the rest of 2023.

Investors Rethink Rate Cut Predictions Amid Hawkish Global Central Banks

A wave of hawkish remarks from the US Federal Reserve, European Central Bank, and Swiss National Bank, coupled with persistently high inflation in the UK, have left investors rethinking their predictions for rate cuts in 2023.

In March, consumer price inflation in Britain remained in the double-digit range, while euro zone inflation declined slightly but remained stubbornly high based on underlying metrics.

These trends are reinforcing expectations for additional rate hikes from the Bank of England and the European Central Bank.

The dollar index dipped by 0.1%, which could make gold relatively less expensive for buyers who hold other currencies.

Technical Analysis

From a daily technical viewpoint, Gold (XAU) is trading on the strong side of its daily pivot at $1927.36, but under the R1 level at $2045.30. The long-term technicals appear to be in favor of an upside move, but the short-term outlook indicates potential weakness.

Overtaking R1 at $2045.30 will indicate the buying is getting stronger. However, a sustained move under R1 could create the downside momentum to trigger a steep break into the pivot at $1927.36.

Support and Resistance

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