Gold Price Forecast: Under Pressure Ahead of Central Bank Meetings

Highlights

• Gold prices flat with yields down, dollar up
• Central bank meetings to provide clarity on rate-hike strategies
• Market prices in a hike by US Federal Reserve in May

Overview

Gold (XAU) is flat on Monday with losses limited by a dip in U.S. Treasury yields and gains capped by a firm U.S. Dollar. Lower interest rates tend to increase demand for the non-yielding asset, while a stronger greenback tends to weigh on demand from foreign buyers.

At 06:13 GMT, Gold (XAU) is trading $1980.98, down $3.70 or -0.19%. On Friday, the SPDR Gold Shares ETF (GLD) settled at $184.26, down $1.83 or -0.98%.

Investors Eye Central Bank Meetings

Gold prices are down for a second consecutive session as investors turn their attention to upcoming central bank meetings. Traders are expecting these meetings to provide clarity on rate-hike strategies, which could shed light on progress in taming inflation. The downward pressure on gold prices is being further compounded by some firming in U.S. Treasury yields, following the release of last Friday’s flash PMI data. This data showed that U.S. and euro zone business activity accelerated in April.

Market Predicts Fed Rate Hike

The market is currently pricing in an 88.6% chance of a 25-basis-point hike by the U.S. Federal Reserve at its May 2-3 meeting, according to the CME FedWatch tool. Although the Fed’s rate expectations have remained stable so far, further resilience in economic conditions over the coming weeks could fuel speculation of another rate hike in June or delay the timeline of rate cuts. These factors would act as headwinds for gold, which is a non-yielding asset.

Central Banks in Flux as ECB and BOE Expected to Hike Rates

On Friday, Fed Governor Lisa Cook stated that the outlook for the next stage of central bank monetary policy has become less clear, despite the aggressive steps taken by the institution in the past year to lower price pressures. Additionally, the European Central Bank is expected to hike rates by a quarter percentage point on May 4, with some likelihood for a half-point hike. The Bank of England is also expected to raise rates to 4.5% on May 11.

Technical Analysis

From a daily technical perspective, the longer-term trend is up, but the short-term trend is neutral. This is creating a sideways trade with the price action concentrated around the mid-point of R1 at $2045.30 and a PIVOT at $1927.36. The price action suggests investor indecision and impending volatility. This usually means investors are waiting for fresh news to drive the next major move.

The gold market is giving investors two choices at this time:  Wait for a break into the support PIVOT at $1927.36, or play for a breakout over R1 at $2045.30.

Support and Resistance: 

For a look at all of today’s economic events, check out our economic calendar.