Gold Price Forecast: Traders Await Powell’s Testimony as Interest Rate Uncertainty Weighs

Highlights

• Gold prices hold steady as traders anticipate Jerome Powell’s testimony.
• Rising Treasury yields restrict gold’s upside potential.
• Investors recalibrate expectations as the Fed’s shift disappoints.

Overview

Gold prices held steady on Tuesday, trading within a narrow range as market participants eagerly awaited guidance from U.S. Federal Reserve Chair Jerome Powell’s upcoming testimony before Capitol Hill. Recent price movements in gold have lacked follow-through, with intermittent bounces restrained by stronger Treasury yields, limiting the upside for the non-yielding precious metal.

Market Awaits Powell’s Testimony on Rates

Investors are closely focused on Powell’s congressional testimony this week.  They are seeking further clarity on interest rates after the Federal Reserve’s recent pause on monetary policy tightening. Expectations are high for cues regarding future rates, following the Fed’s “hawkish pause.”

Cost of Holding Non-Yielding Gold Rises

While gold is traditionally seen as an inflation hedge, the prospect of interest rate hikes increases the opportunity cost of holding the non-yielding metal. Traders are now pricing in a 74% probability of a rate hike by the Fed in July, according to the CME Fedwatch tool.

Hawkish Fed Leads to Offloading of Gold

Some market participants had anticipated a more dovish outcome from the Fed, making the central bank’s recent shift disappointing for some investors. Consequently, there has been some offloading of gold as expectations were recalibrated.

Pressured by US Dollar Gains

In currency markets, the U.S. dollar strengthened on Tuesday, reaching a seven-month high against the yen. The yuan weakened as China cut benchmark lending interest rates for the first time in 10 months. Additionally, Slovakia’s central bank chief indicated that the European Central Bank might raise interest rates in July due to inflation risks. Furthermore, the Bank of England is expected to raise rates by 25 basis points on Thursday.

Bearish Ahead of Powell’s Testimony

In conclusion, gold prices held steady as traders awaited Jerome Powell’s testimony for further guidance on interest rates. The recent firmness in Treasury yields limited gold’s upward potential, and the market is closely monitoring any cues from Powell’s congressional testimonies. While gold typically acts as an inflation hedge, the rising opportunity cost of holding the non-yielding metal due to potential rate hikes has impacted its performance. Additionally, currency movements, such as the strengthening U.S. dollar and China’s rate cut, have influenced market dynamics.

Technical Analysis

Gold prices show a bearish sentiment as the current 4-hour price of 1961.70 is below the 200-4H and 50-4H moving averages. The market faces resistance at 1987.80 – 2000.70. The 14-4H RSI reading of 46.04 indicates neutral to bearish sentiment. However, the price is holding above the Major Support Area of 1936.00 to 1936.10. The Average of the Highest Minor Resistance and the Lowest Major Support is at 1968.35, and the current price is below this average, which is another sign of weakness. Overall, the Gold market is currently bearish, but ongoing monitoring is essential due to changing market conditions.