Gold Price Forecast: Stable Despite High Interest Rates, Debt Ceiling Concerns

Gold Highlights

• Gold prices influenced by high interest rates and debt ceiling debate.
• Federal Reserve’s reluctance to cut rates impacts gold’s price.
• Gold market stability amid inflation concerns and upcoming data.

Gold Overview

XAU prices remained within a narrow range on Tuesday as gold traders considered the statements made by officials from the U.S. central bank, who indicated that interest rates would likely remain high. However, the ongoing debate over the U.S. debt ceiling and the potential risk of default prevented gold prices from experiencing further losses. It is noteworthy that gold prices are currently declining, despite the decrease in Treasury yields and a slightly weaker U.S. Dollar.

The members of the U.S. Federal Reserve are downplaying the likelihood of reducing interest rates this year, which is having a slight downward impact on the price of gold. Additionally, the inability of gold to sustain its position above the previous record high has caused a decline in confidence.

At 07:52 GMT, Gold (XAU) is trading $2009.15, down $5.39 or -0.27%. On Monday, the SPDR Gold Shares ETF (GLD) settled at $187.19, up $0.38 or +0.20%.

Gold reached a price of $2,072.19 this month, coming very close to the previous record high of $2,072.49. This increase in price followed hints from the Federal Reserve that their prolonged cycle of raising interest rates may be coming to an end.

Fed Bankers Concerned about Inflation

U.S. central bankers have expressed their expectations of high or increasing interest rates in the future. Their concerns stem from slow progress in inflation and an economy that shows only tentative signs of weakness. Atlanta Federal Reserve President Raphael Bostic doubts the likelihood of interest rate cuts, even in the event of a recession, citing the slow decline in inflation as a factor. Chicago Fed President Austan Goolsbee emphasizes a cautious approach, monitoring credit stresses, the debt ceiling situation, labor market conditions, and prices. Fed Governor Philip Jefferson and St. Louis Fed President James Bullard also express concerns about high inflation and limited progress in reaching the desired target of 2% inflation.

These statements come amidst recent data suggesting a possible easing of pressure from rising prices. Fed Chairman Jerome Powell had previously suggested that interest rate hikes could be paused depending on future data.

While gold is typically viewed as a safe haven against inflation, the prospect of rising interest rates diminishes its appeal as it doesn’t provide yield or interest.

Gold Traders Watch Debt-Ceiling Talks

Gold traders closely monitor the ongoing debt-ceiling debate, as President Joe Biden and Republican House of Representatives Speaker Kevin McCarthy hold talks to address the issue. Although there is hope for a resolution as discussions continue, the risk of a potential U.S. default still looms. With limited time remaining, uncertainty persists in the gold market, resulting in relatively stable prices as traders await further developments.

Investors Await Retail Sales Data

Investors eagerly anticipate the release of April’s retail sales data, which will offer valuable insights into consumer activity. Economists surveyed by Dow Jones predict a 0.8% increase.

Several central bank officials are scheduled to deliver speeches that are of interest to gold traders. Federal Reserve Vice Chair for Supervision Michael Barr will testify before the House Financial Services Committee on oversight of prudential regulators. Additionally, Federal Reserve Presidents Raphael Bostic (Atlanta), John Williams (New York), and Austan Goolsbee (Chicago) will participate in separate events, sharing their insights. These speeches have the potential to influence market sentiment and gold prices.

Technical Analysis

Gold (XAU) is edging lower on Tuesday, but remains above its pivot at $2002.54. This price is controlling the near-term direction of the market.

A failure to hold $2002.54 will signal the presence of sellers. If this generates enough downside momentum then look for the selling to possibly extend into (S1) at $1956.30.

A sustained move over $2002.54 will indicate the presence 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.