Gold Prices Forecast: Lower Amid Strong Dollar, but Weekly Gain in Sight

Friday’s Price Action

Gold prices experienced a decline on Friday, influenced by a strengthening dollar. Despite this dip, gold remained on track for a weekly gain. This upward trend was primarily driven by the Federal Reserve’s consistent stance on interest rate cuts projected for 2024, enhancing gold’s allure as an investment.

At 09:52 GMT, XAU/USD is trading $2166.605, down $14.755 or -0.68%.

The Impact of a Strong Dollar

The dollar reached a three-week peak, marking its second consecutive week of gains. This surge in the dollar’s value rendered gold, priced in dollars, costlier for holders of other currencies. The anticipated rate cuts generally support gold prices, providing a stabilizing base for the precious metal. However, gold currently shows signs of being overbought, suggesting a potential near-term decline. The $2,146 level emerges as a crucial support point to watch for a potential change in trend.

Thursday’s High and Fed Influence

On Thursday, gold prices soared to a record high, following indications from Fed policymakers of an expected rate reduction totaling three-quarters of a percentage point by the end of 2024, despite recent high inflation. Fed Chair Jerome Powell highlighted that these inflation figures do not alter the broader trend of gradually subsiding U.S. price pressures. The prospect of falling interest rates enhances gold’s attractiveness, as it bears no interest, thus lowering the opportunity cost of holding it. Futures traders are currently betting on a 74% likelihood of the Fed initiating rate cuts as early as June.

Thursday Recap and Gold Outlook

Thursday saw a slight easing in gold prices, temporarily halting a significant rally boosted by Powell’s hints at upcoming rate cuts. The dollar’s rebound also played a role in correcting gold prices, as it became more expensive for international buyers. Despite these adjustments, the overall sentiment for gold remains bullish, supported by factors such as potential interest rate cuts and central bank buying. The futures market for gold is predominantly bullish, driven by short-term traders and trend followers, while the physical gold market remains relatively subdued.

Market Forecast

Looking ahead, gold presents an appealing trade for 2024, especially as a hedge in equity portfolios. The combination of anticipated lower interest rates on alternative assets and strong interest from central banks and hedge funds positions gold for further price increases. Despite the current overbought conditions, the long-term outlook for gold is bullish, with expectations of higher prices driven by a confluence of supportive monetary policies and market sentiment.

Technical Analysis

XAU/USD is edging lower for a second session after hitting a record high on Thursday. The current closing price reversal top chart pattern suggests the selling may be greater than the buying at current price levels.

Friday’s weakness has confirmed the potentially bearish chart pattern. This could fuel the start of a 2 to 3 day correction.

The short-term trend will turn down on a trade through $2146.15. If this creates enough downside momentum then look for a pullback into the retracement zone at $2103.61 to $2075.45.