Gold Prices Forecast: Bullish Sentiment as Fed Rate Cut Looms

Gold Prices Near Two-Month High

Gold prices hovered close to a two-month peak on Monday, buoyed by expectations of a Federal Reserve interest rate cut in June. The softer U.S. economic data last week has fueled these anticipations. Spot gold, despite a slight dip, remained close to its highest level since late December.

At 11:14 GMT, XAU/USD is trading $2083.68, up $0.95 or +0.05%.

Key Drivers: Interest Rates and U.S. Economy

The recent upsurge in gold prices, particularly a $50 rise last week, is largely attributed to weaker U.S. manufacturing and construction spending data. This economic softness hints at a potential interest rate decrease by the Fed. The surge in gold also suggests a possible short-covering, as the rapid increase caught some investors by surprise. Traders now see a 74% probability of a rate cut in June, a significant increase from last week.

Bullion’s Appeal and Upcoming Economic Data

Lower interest rates typically enhance the attractiveness of non-yielding bullion like gold. Market participants are now closely monitoring the upcoming U.S. economic releases, including February’s employment report, for further guidance.

Influence of Treasury Yields and the U.S. Dollar

Gold trading on Monday was also impacted by movements in U.S. Treasury yields and the dollar. While Treasury yields saw an uptick, the dollar weakened, pressured by lower yields and awaiting more decisive economic data. The dollar index slightly eased, reflecting a broader uncertainty in the currency market.

Inflation Data and Federal Reserve’s Stance

Recent inflation readings, including the personal consumption expenditures price (PCE) index, showed a mixed scenario, with some indicators suggesting persistent inflation. This raises questions about the Fed’s rate cut trajectory. Investors are looking for more clarity from upcoming labor market data and Fed Chair Jerome Powell’s testimony to Congress.

Short-term Market Forecast: Bullish Outlook

Given the current economic backdrop and market sentiment, the short-term outlook for gold appears bullish. The anticipation of a Fed rate cut, coupled with ongoing economic uncertainty, is likely to maintain gold’s appeal as a safe-haven asset. Investors should closely monitor the upcoming economic data and Federal Reserve commentary for further direction.

Technical Analysis

Gold (XAU/USD) is edging higher on Monday and in a position to continue its rally on a breakout over the December 28 top at $2088.55. This price is a potential trigger point for an acceleration into the December 4 main top at $2149.00.

On the downside, the nearest support is $2067.00. The major support is the 50-day moving average at $2034.76. This is controlling the intermediate trend.