Gold Prices Forecast: Fed’s Hawkish Tone Pressures XAU/USD

Gold Prices Under Pressure as Investors Await Key Inflation Data

Gold prices continued to decline on Wednesday, extending the week’s losses as traders eyed an upcoming report on the Federal Reserve’s preferred inflation gauge. This data is expected to provide fresh insights into the central bank’s rate cut prospects following recent hawkish comments.

At 11:03 GMT, XAU/USD is trading $2307.28, down $12.32 or -0.53%.

Hawkish Fed Commentary and Stronger Dollar Weigh on Gold

On Tuesday, Fed Governor Michelle Bowman emphasized that maintaining the current policy rate for an extended period would likely suffice to control inflation, though she remains open to further rate hikes if necessary. This stance has reinforced the opportunity cost of holding non-yielding bullion, pressuring gold prices. Additionally, Fed Governor Lisa Cook noted that while rate cuts may eventually be warranted, they are not imminent.

The dollar’s 0.2% rise against its rivals on Wednesday further pressured gold by making it more expensive for holders of other currencies. Concurrently, benchmark 10-year U.S. Treasury yields edged higher as investors processed the Fed’s latest commentary and awaited crucial economic data.

Inflation and Economic Data in Focus

Investors are particularly focused on the upcoming personal consumption expenditure (PCE) price index report due on Friday. As the Fed’s favored inflation measure, this data will significantly influence policymakers’ expectations and the timeline for potential interest rate adjustments. On Thursday, market participants will scrutinize reports on durable goods orders, pending home sales, and weekly initial jobless claims, alongside the final reading of first-quarter GDP.

Recent remarks by Fed officials suggest a cautious approach to rate cuts. Bowman reiterated that rate cuts would only be appropriate when data indicates a sustained easing of inflation towards the Fed’s 2% target, while Cook projected a sharper slowdown in inflation next year. This cautious outlook keeps gold under pressure as higher interest rates diminish its appeal.

Market Outlook

This week could be pivotal for gold due to a confluence of economic and political events. Key data releases, including the PCE report and GDP estimates, alongside the anticipated debate between President Joe Biden and former President Donald Trump, are likely to inject volatility into the precious metal market. With U.S. consumer confidence showing mixed signals, gold remains a critical hedge against economic uncertainty.

Given the current economic indicators and Fed commentary, the short-term outlook for gold appears bearish. Traders should prepare for potential volatility driven by the imminent economic data and political developments.

Technical Analysis

XAU/USD is edging lower on Wednesday as it starts to pull away from the 50-day moving average at $2340.07, which is new resistance. The market is also trading on the weakside of a minor pivot at $2327.80, which is adding to the downside pressure.

If the downside momentum continues then look for a test of the minor bottoms at $2286.83 and $2277.34. The latter is a potential trigger point for an acceleration to the downside.