Gold Prices Forecast: Set for Weekly Gain on Rate Cut Hopes

Interest Rate Cut Expectations Drive Gold Prices Higher

Gold prices are poised for a second consecutive weekly gain, buoyed by increased expectations of an interest rate cut by the Federal Reserve. U.S. consumer prices rose less than anticipated in April, reinforcing hopes for a September rate cut as inflation trends downward. Retail sales data, showing no growth in April, further support the possibility of monetary easing, suggesting cooling domestic demand.

At 11:59 GMT, XAU/USD is trading $2387.12, up $10.16 or +0.43%.

Inflation and Consumer Price Data

The consumer price index (CPI) increased by 0.3% in April, down from 0.4% in the previous two months, indicating a potential easing of inflationary pressures. The year-on-year CPI rose 3.4%, slightly lower than the 3.5% increase in March. Notably, the cost of shelter and gasoline significantly contributed to the CPI rise, while food prices remained unchanged. Core CPI, excluding food and energy, also increased by 0.3%, reflecting persistent inflation in sectors such as healthcare and personal care.

Impact of Economic Indicators on Market Sentiment

The market’s anticipation of a rate cut has grown, with a 73% probability now priced in for September, up from 69% before the latest data. The Federal Reserve’s decision to leave its benchmark interest rate unchanged in the current range of 5.25%-5.50% underscores the cautious approach amid mixed economic signals. Analysts expect inflation to gradually move towards the Fed’s 2% target, particularly as the labor market shows signs of cooling.

Global Demand and Supply Factors

On the demand side, robust retail demand in China and efforts to stabilize the property sector have supported gold prices. However, central bank purchases, notably by China’s central bank, slowed in April as gold prices reached a record high. Supply-side factors, including a 15% increase in gold prices since the beginning of 2024, have kept profit margins healthy for gold miners despite rising operational costs.

Market Forecast: Bullish Outlook

Given the favorable conditions for interest rate cuts and sustained demand from key markets like China, gold prices are expected to maintain their upward trend in the near term. While inflation concerns persist, the likelihood of monetary easing provides a bullish outlook for gold, with prices likely to remain elevated as traders anticipate further central bank actions.

Technical Analysis

XAU/USD is eding higher on Friday, immediately supported by a short-term pivot at $2354.47. The intermediate up trend is being controlled by the 50-day moving average at $2288.35. This is followed by short-term swing bottom support at $2277.34.

If the current upside momentum continues, then look for a surge through minor resistance at $2397.52. The first key upside targets are the minor top at $2497.12 and the main top at $2431.59.