Gold Price Forecast: Traders Bracing for Powell’s Testimony, Potential Fed Tightening Bias

Highlights

• Gold prices range-bound, cautious ahead of Powell’s testimony.
• Fed’s tightening bias and rate hike expectations weigh on gold.
• Jewelry and manufacturing demand may offset interest rate threats.

Overview

Gold prices remained range-bound on Wednesday. This follows two consecutive sessions of declines, as investors adopted a cautious stance ahead of U.S. Federal Reserve Chairman Jerome Powell’s congressional testimony. The anticipated continued tightening bias by the Fed is exerting pressure on gold, making Powell’s testimony a significant short-term market influencer.

Powell’s Testimony: Interest Rate Insights

Chairman Powell is scheduled to deliver a semi-annual monetary policy testimony to the U.S. House Financial Affairs Committee later today. Market participants will be closely monitoring his remarks for insights into the central bank’s stance on the necessity of further interest rate hikes, particularly in light of recent hawkish comments from policymakers. The statements from two Federal Reserve policymakers and an economist nominated to join the board emphasized their focus on curbing inflation to restore sustainable growth to the U.S. economy.

Rate Hike Expectations Capping Gold

Traders have currently priced in a 77% probability of a 25 basis point rate hike by the Fed in July. The expectation of interest rate increases raises the opportunity cost of holding non-yielding assets like gold, adding to its downward pressure.

Some See Underlying Demand

While gold is currently facing significant interest rate threats, the enduring strength of demand in the jewelry and manufacturing sectors may ultimately support prices. This underlying demand could offset some of the downward pressure exerted by the interest rate environment.

Bearish Technicals with $1850 on Radar

In terms of technical analysis, gold is trading below the 200-day moving average, intensifying the downward pressure on prices. This has led to long traders exiting their positions. Meanwhile, bearish traders are shorting gold, with a potential downside target of $1,850 in sight.

The U.S. dollar displayed strength in Asian trade. It was buoyed by robust housing data, further contributing to the pressure on gold prices.

Short-Term Forecast: Poised to Move Lower

In conclusion, gold prices traded within a tight range as investors awaited Chairman Powell’s testimony for insights into the Fed’s interest rate stance. The expected tightening bias, coupled with technical factors such as trading below the 200-day moving average, has led to bearish sentiment. However, the resilience of jewelry and manufacturing demand may provide support in the long run. Traders will continue to closely monitor the impact of Powell’s remarks on gold prices in the short term.

Technical Analysis

Comex Gold sentiment is currently bearish. The current 4-hour price is lower than the previous 4-hour close, indicating a slight decline. Furthermore, the price is trading below both the 200-4H moving average and the 50-4H moving average, suggesting a bearish trend in the long and short term. The 14-4H RSI reading of 37.19 indicates moderate bearish momentum. Additionally, the current price is below the main and minor resistance levels, reinforcing the bearish outlook. Considering these factors, the market for Comex Gold is currently bearish, but it’s important to monitor other factors for a more comprehensive assessment.