Gold Prices Forecast: Geopolitical Uncertainty, Fed Hopes Support XAU/USD

Geopolitical Jitters, Dovish Fed Hopes Buoy Gold

Gold prices are trading sideways after early gains fizzled on Wednesday due to a subdued trading session coinciding with a U.S. bank holiday. The yellow metal initially responded positively to lackluster U.S. economic data, with retail sales barely rising in May, fueling expectations for a Federal Reserve rate cut in September. This pushed the odds of a cut to 67% from 61% a day earlier.

At 10:39 GMT, XAU/USD is trading $2329.67, up $0.09 or +0.00%.

Lower Rates Key Driver, But Market Fully Priced In

Lower interest rates are the main driver for gold, reducing the opportunity cost of holding non-yielding bullion. However, the market already expects at least one rate cut, with this scenario fully priced into the dollar. Furthermore, stable government gold purchases suggest limited upside unless a significant change in the current environment occurs. Support remains near the $2,300 level.

Geopolitical Uncertainty Adds Tailwind

Upcoming elections in France and the UK add a layer of geopolitical uncertainty, which can be a positive for gold. This uncertainty, coupled with pockets of economic weakness like the disappointing retail sales data, could provide further support for gold prices. A recent pause in central bank buying, particularly by China, has tempered some upside momentum, but a resumption of buying could act as a catalyst.

Focus Shifts to Upcoming Data

The immediate focus for gold traders now shifts to Thursday’s U.S. weekly jobless claims data and Friday’s flash purchasing managers’ indexes. This data will provide further clues on the health of the U.S. economy and potentially influence the Fed’s monetary policy stance. A strong economic showing could trigger a pullback in gold prices, but absent a hawkish shift from the Fed, expect gold to hold its ground and potentially make another run at its record highs.

Short-Term Forecast: Bullish

Despite the current pause, the fundamental backdrop for gold remains supportive. Dovish Fed expectations and potential for further economic weakness should continue to underpin prices in the near term. While the recent consolidation phase may test investors’ patience, a strong showing in the upcoming economic data is the only major risk on the horizon. Absent a hawkish surprise from the Fed, expect gold to hold its ground around $2,300 and potentially challenge its record highs again.

Technical Analysis

XAU/USD is stable on Wednesday as volume fell below average due to a rare mid-week U.S. bank holiday.

Although gold is below the 50-day moving average at $2344.09, indicating a weak intermediate trend, the eight days of consolidation above the recent swing bottom at $2277.34, suggests we could be looking at accumulation. However, without a catalyst to drive prices through resistance, gains could be capped and the market could continue to edge sideways over the near-term.