Gold Prices Forecast: Challenging Seven-Week High on Fed Rate Cut Prospects

Gold Prices Higher on Prospects of US Interest Rate Cuts

Gold prices hit a two-week high on Thursday, driven by weaker US economic data, which increased the likelihood of interest rate cuts from the Federal Reserve this year.

At 09:56 GMT, XAU/USD is trading $2334.74, up $6.51 or +0.28%.

Spot Gold Prices Increase

Spot gold rose, reaching its highest point since June 7 earlier in the session. Analysts suggest that the gold market might consolidate recent gains before moving higher, depending on further softening in US macroeconomic data that could influence the interest rate outlook.

Impact of US Economic Data

Recent data showed moderation in the labor market and price pressures, with soft retail sales data indicating sluggish economic activity in the second quarter. The Federal Reserve is cautiously looking for more evidence of cooling inflation before considering rate cuts, which would reduce the opportunity cost of holding non-yielding bullion.

Fed Comments and Geopolitical Tensions

Mixed comments from Fed officials could introduce short-term volatility. ANZ analysts maintain a positive outlook for gold, targeting $2,500 per ounce by the end of 2024. Geopolitical tensions in the Middle East, particularly Israeli military actions in Gaza, are also influencing market sentiment, raising concerns about potential escalations.

Central Bank Activities and Inflation Data

Investors are closely watching central bank activities beyond the Fed. The Bank of England’s recent headline inflation rate hit its 2% target for the first time in nearly three years, yet the probability of an immediate rate cut remains low. Core inflation and services inflation continue to concern policymakers, suggesting that any rate cuts might be postponed until at least August or September.

Market Focus on Upcoming Data

The market is now focused on upcoming US weekly jobless claims data and flash purchasing managers’ indexes. These indicators will be crucial in shaping expectations for future Fed actions and the broader economic outlook.

Market Forecast: Bullish

Given the current economic indicators and the likelihood of forthcoming interest rate cuts, the short-term outlook for gold remains bullish. Traders should monitor incoming economic data closely, as further softening could prompt more aggressive rate cuts, potentially driving gold prices higher.

Technical Analysis

XAU/USD is testing the key 50-day moving average at $2343.32 on Thursday. Although it is acting like resistance, it is also a potential trigger point for an upside breakout.

A sustained move over $2343.32 will shift momentum, putting the swing top at $2387.79 back on the radar.

The inability to overcome $2343.32 will signal the presence of a strong seller, or “stopper”. This could lead to further rangebound trading as traders will attempt to re-establish the support base.

Without the presence of China as a major buyer, traders have become more data dependent as they search for the next catalyst to launch a meaningful rally.