Gold Prices Forecast: Moving Average Resistance, Elevated Yields Capping Gains

Gold Prices Edge Lower as Dollar Strengthens

Gold prices are trending downward on Tuesday, constrained by a stronger U.S. Dollar and elevated Treasury yields. The precious metal is currently trading below its 50-day moving average of $2,337.72, a key technical level for traders.

Market Pressures

Investors are closely watching Federal Reserve Chair Jerome Powell’s upcoming comments for insights into the interest rate outlook. The benchmark 10-year Treasury yield reached a one-month high on Monday, making non-yielding gold less attractive to investors. Gold has retreated 5% from its record high of $2,449.89 per ounce touched on May 20.

Central Bank Activity

Recent data shows a slowdown in central bank gold purchases. The World Gold Council reported net buying of about 10 metric tons in May, a 56% decrease month-on-month. Poland, Turkey, and India were the largest buyers, while Kazakhstan sold 11 tons. This shift in central bank behavior could impact gold’s demand outlook.

ETF Inflows and Price Projections

Global physically backed gold exchange-traded funds (ETFs) saw their first inflows in a year during May, potentially signaling renewed investor interest. Saxo Bank projects gold and silver to reach $2,500 and $35 per ounce respectively by the end of 2024, citing potential U.S. rate cuts in the second half of the year as a catalyst for increased ETF investment.

Economic Indicators

U.S. manufacturing contracted for the third consecutive month in June, with factory input prices dropping to a six-month low. This suggests inflation may continue to subside. The market currently anticipates a 64% chance of Fed rate cuts in September and December, which could support gold prices in the medium term.

Upcoming Events

Traders should monitor Powell’s remarks on Tuesday, the Fed’s latest policy meeting minutes on Wednesday, and U.S. non-farm payrolls data on Friday for potential market-moving information. The JOLTS report, due Tuesday, will also provide insights into labor market conditions.

Market Forecast

The short-term outlook for gold appears mixed. The price trading below the 50-day moving average ($2,337.72) suggests potential bearish momentum, as this technical indicator often signals trend direction and support/resistance levels.

Bearish factors include the stronger dollar, elevated yields, and slowing central bank purchases. These could pressure gold prices in the near term.

However, bullish considerations include potential Fed rate cuts later in the year, recent ETF inflows, and ongoing economic uncertainties. Any signs of weakness in upcoming economic data could provide support for gold prices.

Traders should watch for a potential consolidation phase, with prices likely to move sideways or slightly lower throughout the summer. A break above the 50-day moving average could signal a shift in sentiment, while continued trading below this level may reinforce the bearish trend.

Technical Analysis

All eyes are on the 50-day moving average at $2337.72. XAU/USD traders have been toying with this level since crossing to its bearside on June 7. Right now it’s acting like resistance, but if a bullish catalyst emerges, it’ll turn into a trigger point that could launch a surge into $2387.79. Helping to support our notion for a sideways trade is the support zone at $2286.63 – $2277.34.