Gold Prices Forecast: Fed Policy and US Economic Health Take Center Stage

Highlights

• Weaker U.S. Treasury yields offer limited support to gold prices.
• U.S. economic indicators overshadow geopolitical factors, driving a bearish outlook for XAU/USD.
• The Federal Reserve’s impending policy meeting adds another layer of uncertainty to gold’s short-term trajectory.

Gold Faces Crucial Hurdles Amid Economic Indicators

Gold (XAU/USD) is wading in murky waters as the conflict in the Middle East and key economic indicators leave traders in a standoff. Despite softer U.S. Treasury yields lending some support, the safe-haven allure of the yellow metal seems to be waning. While gold came close to touching the key resistance level at $2,000, profit-taking appears to have put a dent in its recent rally.

Economic Drivers Take Center Stage

Market participants are keenly awaiting the U.S. GDP figures for Q3 and the PCE price index due at the end of the week. With the conflict between Israel and Hamas showing signs of a possible ceasefire, the spotlight is back on economic fundamentals. The U.S. Treasury yields have calmed down but are still near 16-year highs, after Bill Ackman’s decision to cover his bond short position, which brings U.S. economic indicators back to the fore.

Fed’s Stance Looms Large

As the Federal Reserve prepares for its next policy meeting, its commitment to tackling inflation remains unshaken. The markets are mostly expecting the interest rates to stay constant. Jerome Powell’s previous statements indicate that the bank may require a slowdown in economic growth to achieve its inflation target sustainably.

The Resilient Dollar

The U.S. dollar continues to show strength when measured against a basket of currencies, largely owing to the robustness of the U.S. economy, especially when compared to the UK and the European Union. Recent data indicated positive PMI readings in the U.S., contrasting with contractions in both the UK and the Euro Zone. Continued strength could put a lid on demand for dollar-denominated gold.

Short-term Forecast

Given the shift from geopolitical factors to economic drivers, and with U.S. economic indicators coming into focus, gold is likely to struggle in reaching the psychological $2,000 barrier in the short term. Overall, the market sentiment leans bearish, at least for now.

Technical Analysis

Based on the provided data for gold (XAU/USD), the current daily price of $1973.54 is trading above both the 200-day moving average of $1931.78 and the 50-day moving average of $1908.56. This suggests a bullish trend in the short and medium term.

The asset is also trading above the main support level of $1930.64 and minor support at $1952.21, strengthening the bullish outlook.

Market sentiment is bullish given the daily price’s position relative to key moving averages and support levels. However, the gold may still be vulnerable to a near-term pullback into the 200-day moving average, which may attract new buyers.