Gold Price Forecast: US Inflation Data, Fed Meeting Drive XAU Outlook

Highlights

• Gold rises as U.S. dollar weakens, attracting international buyers.
• Fed expected to maintain interest rates amidst easing inflationary pressures.
• Language used by Fed to influence future path of gold prices.

Overview

Gold (XAU) is edging higher as the U.S. dollar weakens, attracting overseas buyers to the greenback-priced metal. The latest data revealed that the U.S. consumer price index rose by 4.0% in May, marking its smallest annual increase in over two years. However, it still remains significantly above the Federal Reserve’s 2% target. The central bank is expected to keep interest rates unchanged in their upcoming decision, considering the easing inflationary pressures.

Fed Expected to Maintain Rate Levels

In their first meeting in 15 months, Fed officials entered the realm of uncertainty, leaving investors wondering about potential rate hikes. The market sentiment indicates a high probability, around 90%, of the Fed maintaining the current interest rates. This growing consensus has caused some investors to exit the gold market in recent times.

Longer-term Upside Bias

Despite the caution stemming from the price action in the recent range, it appears that the bullish sentiment is prevailing in the ongoing struggle. Gold continues to maintain a bullish weekly channel and exhibits a positive outlook in medium- and longer-term time frames. However, the ultimate trajectory may hinge upon the language used by the Fed in their decision.

More Attractive if Fed Stops Raising Rates

While gold is traditionally viewed as a hedge against inflation, the prospect of higher interest rates to curb price pressures can dampen the appeal of the non-yielding asset. Nevertheless, the current circumstances and the Fed’s cautious approach support the belief that gold will remain an attractive investment option in the foreseeable future.

Short-Term Forecast: Bulls Want Clearly Dovish Fed

In summary, gold is on the rise today as the U.S. dollar weakens, making it more enticing for international buyers. The Federal Reserve’s meeting is expected to result in unchanged interest rates due to the easing inflationary pressures. Although some investors have withdrawn from the gold market, the overall sentiment remains bullish, supported by a favorable weekly channel and positive medium- to longer-term projections. The language used by the Fed will play a crucial role in shaping the future path of gold prices.

Technical Analysis

Gold (XAU) is trading on the bearish side of $1992.24 (PIVOT), putting it in a weak position. The selling pressure is also bringing it closer to $1917.41 (S1).

Longer-term, a sustained move under $1992.24 (PIVOT) will indicate the market is still in the hands of strong sellers.

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

At this time, the bias is to the downside with Tuesday’s steep sell-off wiping out any potential upside momentum that had been building the past two weeks.