Gold Prices Forecast: XAU/USD Defies Strong Dollar, Reflecting Global Growth Worries

Highlights

• Gold prices rose 0.2%, defying a robust U.S. dollar and surging bond yields.
• Central banks globally signal commitment to high rates, hinting at growth worries.
• Gold’s allure as a hedge dampened by the challenges of rising interest rates.

Gold Prices Respond to Central Banks’ Interest Rate Decisions

Gold (XAU/USD) prices experienced a slight increase on Friday, with a 0.2% rise to $1,925.27 per ounce, despite a strong U.S. dollar and rising bond yields. This uptick occurs in the wake of central banks from the world’s major economies signaling their commitment to maintaining high interest rates to address inflation.

These decisions reflect concerns about global economic growth rather than controlling inflation. Specifically, there’s an overarching sentiment that the momentum of global growth is diminishing.

Dollar and Treasury Dynamics

The U.S. dollar’s position is close to a six-month peak, influenced by expectations of enduring high U.S. rates. Concurrently, 10-year Treasury yields have reached a 16-year high, putting stocks under strain. As a traditionally sought hedge against economic instability, gold faces challenges from rising interest rates, which impact non-interest-yielding bullion priced in dollars.

Federal Reserve’s Rate Stance

The Federal Reserve opted for steadiness in interest rates, though their latest projections indicate a potential rate increase within the year and a consistent approach through 2024. This stance caused a dip in gold as traders processed the Fed’s more hawkish attitude. However, spot gold saw only limited declines post-FOMC, suggesting traders are anticipating a U.S. rate cut in the future.

Market Responses and Speculations

According to the CME FedWatch tool, markets predict a 45% probability of another rate hike this year and approximately a 44% likelihood of rate reductions in early 2024. These speculations are in the backdrop of the Bank of Japan’s decision to retain ultra-low rates and the upcoming release of key PMI data from the UK, U.S., and the euro zone.

Short-Term Outlook

Given the existing dynamics, gold’s potential for significant gains hinges on slowing momentum in Treasury yields. With U.S. Treasury yields currently at multiyear highs, gold prices and the broader market will keenly watch forthcoming U.S. unemployment data and Federal Reserve’s next moves to discern any policy shifts or economic indications. The current market sentiment remains cautious, leaning towards a bullish stance for gold.

Technical Analysis

Given the provided data for Gold (XAU/USD) on the 4-hour chart, the commodity exhibits marginal upward momentum, with the current price of 1944.20 sitting just above its previous 4-hour close of 1944.10.

It’s positioned in a tight band, trading slightly below the 200-4H moving average of 1945.50 but marginally above the 50-4H moving average of 1943.20, suggesting a phase of consolidation. The 14-4H RSI at 47.27 denotes a softening momentum, steering clear from any oversold conditions.

Currently, the price maintains a position above the main support zone, between 1908.50 and 1900.60, while facing potential resistance from 1980.00 to 2000.50. The overall analysis leans towards a neutral to slightly bullish market sentiment.