Gold Prices Forecast: Underpinned by Falling US Dollar, Yields

Gold Market Rebound

Gold prices are experiencing a modest rebound on Tuesday, bolstered by a dip in the U.S. dollar and Treasury yields. Key economic reports and Federal Reserve officials’ insights on future rate cuts are the focal points driving this trend.

At 11:23 GMT, XAU/USD is trading $2036.72, up $5.47 or +0.27%.

U.S. Dollar and Treasury Yields

The U.S. dollar index (DXY) continued its decline, coupled with a fall in the 10-year Treasury yield. This combination enhanced the attractiveness of gold for holders of other currencies, contributing to gold’s price increase above $2,000 per ounce. The anticipated Federal Reserve rate cuts, expected around mid-year, are also playing a crucial role in shaping investor expectations and gold’s price trend.

Economic Data and Federal Reserve Policy

Investors are closely analyzing various economic reports, including the latest on new home sales, gross domestic product, and durable goods orders. These data points provide critical insights into the U.S. economy’s health amid high-interest rates and ongoing inflation concerns. The Fed’s policy decisions, particularly regarding interest rates, hinge on these data, with a focus on achieving the 2% inflation target. However, recent inflation data exceeding expectations indicates that inflation may be more stubborn than previously thought.

Market Expectations and Interest Rate Projections

Market sentiment has shifted, now forecasting the first rate cut to occur in June instead of March, as indicated by the CME FedWatch Tool. This shift in expectations follows recent comments from Fed officials and economic data releases. Currently, markets are assigning a 63% probability to a June rate cut. Lower interest rates typically increase the appeal of gold, which does not yield interest.

Upcoming Reports and Dollar Index Movement

Investors are awaiting the core personal consumption expenditures price index, a crucial inflation indicator for the Fed, due later this week. Meanwhile, the U.S. dollar index remains relatively flat, with upcoming economic data expected to provide further direction on the Fed’s rate cut timeline.

Short-term Market Forecast

Considering the current economic data, Federal Reserve policy expectations, and market sentiment, the outlook for gold in the short term appears bullish. The anticipated Fed rate cuts and ongoing economic uncertainties are likely to sustain demand for gold, potentially pushing prices higher. The key will be closely monitoring the forthcoming economic reports and Fed officials’ commentary for any significant deviations from current expectations.

Technical Analysis

Gold (XAU/USD) is edging higher on Tuesday, teetering on a potential breakout above the 50-day moving average at $2032.90. Trader reaction to this intermediate trend indicator will set the tone in today’s session.

A sustained move over $2032.90 will indicate the presence of buyers. If this move creates enough upside momentum then look for a surge into the nearest resistance at $2067.00 over the near-term.

The inability to overcome the 50-day MA will signal the return of sellers. If this generates enough downside pressure then look for a near-term test of static support at $2009.00.