Gold Prices Forecast: Prices Spike Higher as Treasury Yields, Dollar Weaken

Gold Prices Surge

On Monday, gold prices rose significantly, capitalizing on the soft U.S. dollar following a weaker-than-expected jobs report. The metal gained nearly 1%, supported by revived expectations that the Federal Reserve might cut interest rates sooner than previously anticipated.

At 11:24 GMT, XAU/USD is trading $2321.17, up $19.36 or +0.84%.

Impact of Economic Data

The dollar reached its lowest level since April 10, pressured by the April jobs report which showed U.S. payrolls increased by only 175,000, far below the Dow Jones estimate of 240,000. Additionally, the unemployment rate ticked up to 3.9%, and wage growth decelerated, signaling potential labor market cooling. This data has directly influenced U.S. Treasury yields, with the 10-year yield declining 2 basis points to 4.475% and the 2-year Treasury yield slipping 1 basis point to 4.789%.

Fed Rate Cut Speculation Increases

The labor market’s apparent softening has led to heightened speculation regarding the timing of Federal Reserve rate cuts. The probability of a rate reduction in September surged to 71% according to the CME’s FedWatch Tool. Lower interest rates typically reduce the opportunity cost of holding non-yielding assets like gold, making it more attractive relative to yield-bearing assets.

Federal Reserve’s Next Moves

While the Fed maintained interest rates at their recent meeting, the softened economic data provides them with a rationale to consider lowering rates to support the economy. This possibility is further substantiated by market pricing, which now forecasts up to 45 basis points in cuts for this year, with a November rate cut fully anticipated.

Short-Term Forecast

In the coming weeks, gold’s short-term trend will likely hinge on further commentary from Federal Reserve officials, with speeches scheduled from key figures like Richmond Fed President Tom Barkin and New York Fed President John Williams. These appearances are critical for providing deeper insights into the central bank’s policy direction.

Additionally, ongoing geopolitical tensions in the Middle East could sustain gold’s status as a safe-haven asset. Considering these factors, the short-term forecast for gold remains bullish, with expectations of continued upward pressure on prices amid economic uncertainties and potential Fed actions.

Technical Analysis

XAU/USD is edging higher on Monday but inside it’s five-day range, which suggests impending volatility with a bias to the upside.

The short-term trend will change to up on a trade through $2352.64. This will also shift momentum to the upside.

A trade through $2301.81 will signal a resumption of the short-term downtrend. This is likely to lead to a test of the 50-day moving average at $2240.28. This is controlling the intermediate-term trend.