Gold Price Forecast: XAU Dips as Traders Monitor US Dollar, Fed’s Rate Outlook

Highlights

• Gold (XAU) trading down in quiet session, attention on US Dollar and Treasury yields.
• Federal Reserve’s interest rate outlook influenced by US debt ceiling vote.
• Short-term forecast for Gold (XAU) suggests slight downward movement.

Overview

Gold (XAU) is edging lower in a quiet trade on Thursday with all eyes on the U.S. Dollar and Treasury yields. Investors are also gauging the Federal Reserve’s interest rate outlook following a critical vote on the U.S. debt ceiling.

At 06:01 GMT, Gold (XAU) is trading $1962.51, down $3.87 or -0.20%. On Wednesday, the SPDR Gold Shares ETF (GLD) settled at $182.34, up $0.30 or +0.17%.

US Dollar Holds Near High Amid Rate Hike Uncertainty

The US Dollar is trading relatively flat or slightly lower against a basket of major currencies, but it’s still near a high point compared to the past two months. This is because investors are becoming less confident that the Federal Reserve will raise interest rates this month. However, the US House approving the suspension of the debt ceiling has given some support to the US Dollar.

The US Dollar index increased by 0.13% to 104.28, but it has dropped from its recent high point that was reached in the previous trading session. Traders have reduced their expectations of another interest rate hike by the Federal Reserve this month.

Fed Officials Consider Delaying Rate Hike Amid Inflation Concerns

Federal Reserve officials, including the vice chair-designate, have indicated that they may delay the rate hike in June. They want more time to evaluate the impact of the previous rate hikes, taking into account the persistent high inflation data.

The market is currently estimating a roughly 38% chance of a 25 basis points rate increase at the upcoming Federal Reserve meeting. This is a decrease from the nearly 67% chance estimated just a day ago, according to the CME FedWatch tool.

Treasury Yields Strengthen as House Passes Debt Ceiling Bill

Meanwhile, Treasury yields are strengthening as a result of the House passing the debt ceiling bill. This happened just before the US was projected to run out of funds to pay its bills. The bill is the outcome of an agreement between House Speaker Kevin McCarthy and President Joe Biden. Senate Majority Leader Chuck Schumer has expressed the intention to move the bill quickly in the Senate.

Gold investors didn’t have a strong reaction to the bill passed by the US House, which could suspend the government’s borrowing limit and prevent a default. Now the focus shifts to the Senate and the outlook for interest rates.

Surprising Job Openings Boost Labor Market, Fed Rate Hike Possible

On Wednesday, there were unexpected increases in US job openings for April, and the data for the previous month was revised higher. This indicates ongoing strength in the labor market, which could push the Federal Reserve to raise interest rates again in June. However, the Chicago purchasing managers index was lower than expected.

Key Economic Reports Awaited by Traders Today

Later today, traders will have the opportunity to react to several reports: the ADP Non-Farm Employment Change report at 12:15 GMT, the Weekly Unemployment Claims report at 12:30 GMT, and the Revised Nonfarm Productivity and Revised Unit Labor Costs reports, also at 12:30 GMT. Additionally, at 14:00 GMT, traders will be watching the ISM Manufacturing PMI data.

Short-term Outlook:  Slightly Bearish

Based on the current analysis, the short-term forecast for gold (XAU) suggests a slight downward movement in a quiet trading session. The focus remains on the US Dollar and Treasury yields, as well as the Federal Reserve’s interest rate outlook following the US debt ceiling vote.

Technical Analysis

Gold (XAU) is trading on the bearish side of $1987.64 (PIVOT), putting it in a weak position. This level is also the nearest resistance and a potential trigger point for an acceleration to the upside.

A sustained move under $1987.64 (PIVOT) will indicate the selling pressure is getting stronger. If this creates enough downside momentum then look for the selling to possibly extend into $1908.21 (S1).

A sustained move over $1987.64 (PIVOT) will signal the return of strong counter-trend buyers. If this creates enough near-term momentum then look for a surge into the $2043.17 (R1).

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