Gold Prices Forecast: Fed Officials Hint at Easing as XAU/USD Eyes Record Highs

Gold Prices Poised for Third Weekly Gain Amid Rate Cut Expectations

Gold prices have retreated from a seven-week high reached on Thursday but remain on track for a third consecutive week of gains. This upward trend follows weaker-than-expected U.S. inflation data, which has intensified market expectations for interest rate cuts as early as September.

U.S. Inflation Data Fuels Rate Cut Optimism

Thursday’s unexpected decline in U.S. consumer prices (CPI) has reinforced the view that the disinflation trend is resuming. This development has bolstered investor confidence that the Federal Reserve is moving closer to considering rate cuts. The Fed’s increasingly dovish stance, acknowledging that consumer prices are trending in the right direction, has further supported this outlook.

Market Reaction and Expectations

Following the CPI data release, market sentiment has shifted dramatically. The CME FedWatch Tool now indicates a 93% probability of a rate cut in September, up from 70% before the data was published. An additional cut is anticipated by December. This shift in expectations has provided significant support for gold prices.

Fed Officials Signal Potential Rate Cuts

Recent statements from Federal Reserve officials have aligned with market expectations. San Francisco Fed Bank President Mary Daly expressed her anticipation of further easing in both price pressures and the labor market, which could warrant interest rate cuts. Similarly, Chicago Fed Bank President Austan Goolsbee suggested that the U.S. economy appears to be on track to achieve 2% inflation.

Market Forecast

The outlook for gold remains bullish in the short term. As the market moves closer to a lower interest rate environment, conditions appear favorable for gold to potentially set new record highs before the year’s end. The combination of cooling inflation, dovish Fed rhetoric, and increasing rate cut expectations creates a supportive backdrop for the precious metal.

Technical Analysis

XAU/USD is lower on Friday, but inside yesterday’s wide range. The chart pattern indicates investor indecision and impending volatility. Despite the setback, gold remains in the neighborhood of the all-time high at $2450.13.

In addition to the strong upside momentum, XAU/USD is well-supported by the 50-day moving average at $2347.49.

Like the Fed, I think gold traders are also data-dependent, which is adding to heightened expectations of volatility.