Gold Price Forecast: XAU Retreats from High as Fed Still Wary of Inflation

Gold (XAU) Highlights

• Gold near all-time highs due to lower yields and weaker dollar
• Fed suggests rate pause, but Powell still wary of inflation
• Gold prices expected to remain volatile in the near-term

Gold (XAU) Overview

Gold (XAU) prices were trading close to all-time highs on Thursday, as U.S. bond yields and the dollar declined following indications from the U.S. Federal Reserve that it might pause its rate-hike cycle. However, the price has retreated from its earlier high and is currently trading lower, which could indicate the formation of a reversal top.

The price movement is volatile due to speculators still analyzing yesterday’s Federal Reserve monetary policy statement and comments from Federal Reserve Chairman Jerome Powell.

At 07:12 GMT, Gold (XAU) is trading $2035.79, down $16.205 or -0.79%. Earlier in the session, prices rose to $2,072.19 per ounce and hovered close to an all-time high of $2,072.49 scaled in 2020. On Wednesday, the SPDR Gold Shares ETF (GLD) settled at $189.09, up $1.57 or +0.84%.

Fed’s Cautious Optimism Lifts Traders

On Wednesday, the Fed increased its benchmark overnight interest rate by 25 basis points. However, unlike before, the Fed did not state that it “anticipates” any further rate increases, but rather said that it would monitor incoming data to determine if additional hikes “may be appropriate.” This was seen as a positive sign by traders.

Powell’s Inflation Concerns Unsettle Traders

Despite this, during the post-meeting press conference, Powell agreed with the statement, but also mentioned that the Fed still considers inflation too high and it’s too early to conclude that the rate hike cycle is over. These comments were interpreted as negative by traders.

Fed’s Rate Pause Prospects Boost Gold

Gold prices have been supported by a combination of lower yields and a weaker dollar in the wake of the recent Fed meeting and changes in the policy statement language that suggest the central bank may move towards a rate pause.

The dollar index has declined by 0.2%, which has made gold, priced in U.S. dollars, more affordable for foreign buyers. Additionally, benchmark U.S. Treasury yields have also dropped.

Gold Outlook Remains Positive Despite Volatility

Although there is currently some profit-taking, the overall outlook for gold remains optimistic. However, gold prices are expected to remain volatile in the near-term as the Fed walks a tightrope, trying to maintain its credibility in fighting inflation while also attempting to engineer a soft landing for the economy.

Technical Analysis

Gold is trading on the strong side of its daily pivot at $2002.54, putting it in a bullish position. The move created enough upside momentum to overcome resistance (R1) at $2035.78 earlier in the session.

In order to sustain the rally, buyers are going to try to establish support at (R1). If successful, look for the rally to possibly extend into the next target at (R2) or $2082.03. This is also a potential trigger point for an acceleration into resistance (R3) at $2115.26.

A failure to hold (R1) at $2035.78 will signal the return of sellers. This could lead to a retest of the pivot at $2002.54.