Gold Price Forecast: XAU Rebounds, but Gains Limited by Fed Rate Hike Bets

Highlights

• Gold prices rise due to weaker U.S. dollar
• China’s economic recovery boosts demand for riskier assets, including gold
• Uncertainty over the Fed’s monetary policy stance limits gains

Overview

Gold (XAU/USD) prices rebounded on Tuesday, following two days of losses. The rise was attributed to the easing of the U.S. dollar, which made the dollar-denominated asset more appealing to holders of foreign currencies. The U.S. dollar index was 0.1% lower, which made bullion cheaper for overseas buyers. This helped push gold prices up.

At 07:00 GMT, the XAU/USD is trading $2001.03, up $6.98 or +0.35%.

China’s Economic Recovery Weakens Dollar

However, gains in gold prices were limited due to uncertainty over the U.S. Federal Reserve’s monetary policy stance. Investors were seeking more clarity on the matter, which impacted the demand for gold.

Despite this, the news of China’s economic recovery gathered pace in the first quarter, with the country’s gross domestic product growing 4.5% year-on-year, beating expectations. This development drove up demand for riskier assets, which in turn put some pressure on the U.S. dollar.

Overall, the rise in gold prices on Tuesday was driven by a combination of factors, including the easing of the U.S. dollar and the news of China’s economic recovery. However, the uncertainty over the U.S. Federal Reserve’s monetary policy stance limited gains in the precious metal.

Gold Prices Fall to Two-Week Low

Gold (XAU/USD) prices fell to a two-week low on Monday following the release of data showing an increase in manufacturing activity in New York state for the first time in five months. Additionally, confidence among U.S. single-family homebuilders improved for a fourth consecutive month in April. These developments led to an increase in bets for an interest rate hike by the Federal Reserve at its May meeting.

As per the CME FedWatch tool, there is an 86.7% chance of a 25 basis point hike in May, further affecting the appeal of non-yielding bullion. While gold is often considered a hedge against inflation and economic uncertainties, higher interest rates can dim its appeal.

Trader Focus Turns to Fed Officials

Trader focus now shifts to comments from Fed officials in the coming week, as they enter a blackout period from April 22, ahead of the central bank’s May 2-3 meeting. With a multitude of earnings, political, geopolitical, and central bank risks on the table, even a couple of significant risks could trigger safe haven flows towards gold, pushing it towards record territory.

Technical Analysis

From a technical view, according to the daily chart, the XAU is trading above the pivot at $1927.36, while the RSI indicator is overbought. The technicals appear to be in favor of an downside move and a potential test of $1927.36. If the price crosses R1 at $2045.30 then look for the rally to extend into R2 at $2121.30.

Resistance and Support lines: 

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