Gold Price Forecast: XAU Prices Slip on Strong US Dollar Ahead of Fed Rate-Hike Decision

Gold (XAU) Highlights

• Gold falls as U.S. dollar strengthens
• Gold remains a hedge against inflation
• Fed’s upcoming meeting and US economic data to impact Gold prices

Gold (XAU) Overview

Gold (XAU) prices fell on Monday due to the strength of the U.S. dollar, as traders adjusted their positions ahead of the highly anticipated Federal Reserve rate-hike decision expected later this week. The dollar index rose by 0.1%, causing bullion priced in greenbacks to become more expensive for buyers outside of the U.S.

At 05:13 GMT, Gold (XAU) is trading $1982.51, down $4.42 or -0.22%. On Friday, the SPDR Gold Shares ETF (GLD) settled at $184.82, up $0.07 or +0.04%.

On Friday, it was reported that consumer spending in the U.S. did not change in March, and there were indications that inflation pressures were still present. This could result in the U.S. central bank raising interest rates again later this week.

Gold Prices Rise on Banking Turmoil

Although bullion is considered a hedge against inflation, an increase in interest rates tends to reduce the attractiveness of zero-yielding assets. Despite this, gold prices increased by over 1% in April due to renewed worries about the turmoil in the U.S. banking industry, leading investors to seek out the safety of this asset.

Gold Traders Eye Fed Meeting

Gold traders are anticipating the upcoming meeting of the Federal Open Market Committee (FOMC) on May 2-3, with many expecting a 25 basis-point increase in interest rates.

If the Fed delivers a more hawkish message than expected, it could have a negative impact on gold prices. This could drive Gold (XAU) into $1956.30.

Alternatively, if U.S. economic data takes a significant downturn and the Fed agrees to pause rate hikes or even begin lowering rates later in the year, then look for a surge in gold prices, potentially reaching above the $2,000 mark.

ECB Hike, China Stimulus Could Impact Gold

There are some developments in the gold market to watch out for. The European Central Bank is expected to raise rates for the seventh consecutive meeting on May 4th. This could impact gold (XAU) prices.

Additionally, China, a major consumer of bullion, saw a surprise decline in its manufacturing activity in April. This according to official data released on Sunday. This puts pressure on policymakers to find ways to revive the economy, which has been struggling to recover from the effects of the COVID-19 pandemic. These factors may have an impact on the price of gold going forward.

Technical Analysis

Gold is currently trading on the weak side of a pivot at $2002.54, making the level new resistance. This price is also controlling the near-term direction of the market.

A sustained move under the pivot at $2002.54 will indicate the presence of sellers. If this creates enough downside momentum then look for the selling to possibly extend into the first support (S1) at $1956.30.

A sustained move over $2002.54 will signal the presence of buyers. If this generates enough upside momentum then look for a possible extension of the rally into the first resistance (R1) at $2035.78.

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