Gold Prices Forecast: Extending Losses as Dollar Firms on Hawkish Fed Remarks

Key Points

• Waller’s hawkish stance pressures gold prices.
• U.S. dollar’s rise challenges gold’s market position.
• Short-term gold outlook bearish amid Fed, economic signals.

Gold Prices React to Fed’s Hawkish Stance

Gold prices are trading lower on Wednesday, influenced by a strengthening U.S. dollar after Federal Reserve official Christopher Waller’s hawkish remarks. These comments dampened the market’s anticipation of a March interest rate cut, shifting focus to upcoming statements from other Fed members. The dollar’s surge and Waller’s impact on both stock indexes and Treasury yields are crucial to understanding gold’s current trajectory.

At 07:37 GMT, Gold (XAU/USD) is trading $2020.67, down $7.84 or -0.39%.

Waller’s Influence and Treasury Yields

Waller’s statements have significantly impacted various financial markets. The major U.S. stock indexes experienced a sell-off, and U.S. Treasury yields saw their largest daily increase in over three months. This movement in Treasury yields, especially the notable rise in the 10-year and 2-year notes, reflects the market’s response to the Fed’s potential rate cut strategy. Waller emphasized a methodical approach to lowering rates, differing from past rapid cuts.

Currency Trends and Economic Indicators

The dollar index’s rise has made gold more expensive for holders of other currencies, reaching a one-month high. This movement aligns with Waller’s stance on rate cuts and the Fed’s inflation goals. The index’s current position, alongside the euro’s performance, is a critical factor for gold investors. Additionally, today’s U.S. retail sales data may further influence market sentiment, especially if it indicates a slowdown in consumer spending.

Short-term Outlook for Gold

In the short term, gold’s outlook appears bearish. Influenced by Waller’s comments, the rise in Treasury yields, and the dollar index’s strength, gold prices are under pressure.

While geopolitical tensions offer some support, the primary drivers in the immediate future are the Fed’s rate decision and economic indicators.

The market’s focus on these elements, particularly in the context of the U.S. dollar’s dominance and bond market reactions, suggest a bearish trend for gold prices in the near term.

Technical Analysis

Gold (XAU/USD) currently trades above both its 200-day and 50-day moving averages, signaling an uptrend.

The current daily price of 2024.21, though slightly lower than the previous close of 2028.51, remains above the key 200-day moving average of 1963.66, indicating long-term bullishness. However, the proximity to the 50-day moving average at 2017.93 suggests a critical juncture.

A successful test of this level earlier suggests the presence of buyers, but a breach below could shift the market to bearish, targeting the minor support at 2009.00. If this support fails, a further downside towards the main support at 1952.21 could occur.

The market, therefore, hovers in a sensitive balance, with the immediate trend likely to be determined by the ability to sustain above the 50-day moving average.