Gold Prices Forecast: Testing 3-Week High as Dollar Weakens Ahead of PCE Report

Highlights

• Gold spikes on Federal Reserve rate cut expectations.
• Dollar’s dip boosts gold, Fed cut odds at 83%.
• Inflation data to guide Fed’s interest rate strategy.

Gold Prices Rally on Rate Cut Expectations

Gold (XAU/USD) prices reached a three-week high on Friday, driven by growing expectations of Federal Reserve interest rate cuts early next year. This anticipation has led to a decrease in both the dollar and bond yields, significantly impacting the gold market.

Dollar Weakness and Rate Cut Odds

The dollar index is near a five-month low, enhancing gold’s attractiveness for investors using other currencies. U.S. 10-year bond yields are at their lowest level since July. The probability of a Fed rate cut by March is currently at 83%, as indicated by the CME FedWatch tool, reducing the holding cost of non-interest yielding gold.

Fed’s Outlook vs. Market Sentiment

Despite Federal Reserve officials expressing reservations about quick rate cuts in the next year, investor sentiment has not shifted significantly. The focus is now on the forthcoming November core personal consumption expenditure (PCE) price index report, which the Fed uses to gauge inflation, for further insight into U.S. interest rate trends.

Inflation Expectations and Fed Policy

The market anticipates the core PCE price index to have risen 3.3% year-over-year, a slight decrease from October’s 3.5%. These inflation trends suggest the Fed might have more flexibility to implement easier monetary policies if necessary.

Gold’s Short-term Market Outlook

Considering the weakening dollar and the anticipated Fed rate cut, the outlook for gold appears bullish in the short term. The upcoming core PCE price index data will be crucial for traders, as it will influence the Fed’s decisions on interest rates and subsequently affect gold prices in the near future.

Technical Analysis

Gold (XAU/USD) is currently trading at 2050.09, above both the 200-day (1958.59) and 50-day (1994.86) moving averages, suggesting bullish momentum in the market.

The price is also above the minor support level of 2009.00 and approaching the minor resistance at 2067.00. This positioning indicates strength in the market, as gold is trading comfortably above significant support levels and near the lower end of the resistance zone. The close proximity to the minor resistance could lead to a test of this level, and if breached, may set the stage for a move towards the main resistance at 2149.00.

Overall, the market sentiment for gold appears bullish, supported by its position relative to key moving averages and current support and resistance levels.