Gold Price Forecast: Supported by Expectations of Fed Interest Rate Hike Pause

Highlights

• Gold prices dip but poised for weekly gain.
• Expectations of interest rate hike pause support gold.
• Market cautious ahead of upcoming Fed meeting.

Overview

Gold (XAU) prices are edging lower on Friday following a more than 1% increase in the previous session. However, the precious metal remained on track for a weekly gain, supported by expectations of a potential pause on interest rate hikes by the U.S. central bank.

At 06:00 GMT, Gold (XAU) is trading $1964.88, down $0.535 or -0.03%.

Caution Ahead of Fed Meeting

Like many other assets, gold has been rangebound as traders exercise caution ahead of the upcoming U.S. Federal Reserve meeting. The pullback observed today is a natural occurrence after a spike in prices, allowing for consolidation and some profit-taking.

Weaker Dollar Supportive

The weakening of the dollar also played a role in gold’s performance, as a weaker dollar makes gold less expensive for overseas buyers. The dollar index remained close to Thursday’s lows, contributing to the support for the yellow metal.

US CPI Report to Provide Clarity

Looking ahead, market focus now turns to the U.S. consumer inflation report for May, scheduled for release on June 13, just before the Fed meeting. This report will provide investors with greater clarity regarding the health of the world’s largest economy and potentially impact gold prices.

IMF Urges Hawkish Central Bank Policy

In addition, the International Monetary Fund (IMF) has urged the U.S. Fed and other global central banks to maintain their current monetary policy paths and remain vigilant in combating inflation. This call from the IMF highlights the importance of central banks’ actions in addressing economic challenges.

Traders Bet on June Pause, July Rate Hike

Despite the recent dip, the overall trend in gold remains positive, and prices are eagerly awaiting another trigger to resume their upward movement. Currently, the market is pricing in a 76% chance of the Fed keeping interest rates unchanged in the upcoming meeting, given that rates have been raised consistently since March 2022. However, there is a 51% probability of a 25 basis point rate hike in July.

It’s worth noting that rate hikes increase the opportunity cost of holding non-yielding assets like gold, which may impact its appeal among investors. As such, market participants will closely monitor the decisions made by the central bank in the coming months.

Nearby Tone Determined by CPI, Fed News

In conclusion, while gold prices experienced a slight dip, the overall outlook remains positive due to expectations of a potential pause on interest rate hikes by the U.S. central bank. Market participants eagerly await upcoming economic data and the Fed meeting for further guidance on the trajectory of gold prices.

Technical Analysis

Gold (XAU) is trading on the bearish side of $1992.24 (PIVOT), putting it in a weak position. However, it’s also trading on the strong side of $1917.41 (S1).  The mid-point of this range is $1954.83. Early Friday, the market is on the strongside of the mid-point, suggesting the return of sellers.

A sustained move over the $1992.24 (PIVOT) will signal the return of strong buyers. If this creates enough near-term momentum then look for a surge into the $2052.37 (R1).

Longer-term, a sustained move under $1992.24 (PIVOT) will indicate the selling pressure is still strong. If this creates enough downside momentum then look for the selling to possibly extend into $1917.41 (S1).