Gold Prices Forecast: XAU/USD Dips Amid U.S. Economic Winds

Highlights

• Gold prices dip, shadowed by looming U.S. economic and political events.
• U.S. Federal Reserve hints at prospective interest rate hikes, unsettling XAU/USD traders.
• Potential U.S. government shutdown and its implications weigh heavily on the financial sphere.
• Declining holdings in SPDR Gold Trust reveal waning investor interest in the precious metal.

Gold Prices Respond to U.S. Uncertainties

Gold (XAU) prices are inching lower on Monday, reflecting cautious investor sentiment influenced by imminent U.S. economic and political events. As the U.S. Federal Reserve indicates potential interest rate hikes and with a significant consumer inflation report on the horizon, the precious metal has seen fluctuations. Concurrently, political uncertainties surrounding a potential U.S. government shutdown further impact the financial markets.

Key Market Influencers

The ongoing U.S. automakers’ strike, combined with apprehensions regarding the government’s budget resolution for the fiscal year, has kept traders on their toes. Without a concrete agreement by the end of September, a government shutdown is inevitable, bringing with it a slew of economic repercussions. In the gold market, the SPDR Gold Trust, the globe’s leading gold-backed ETF, recorded its lowest holdings since January 2020, signaling reduced investment interest amidst these uncertainties.

Impact of Global Policies on Gold

Gold’s appeal as a non-interest-paying asset diminishes with rising interest rates. Recent declarations from Fed officials have highlighted this correlation, suggesting further hikes are plausible, even though the benchmark rate remained stable last week.

Such financial policies, especially with the dollar nearing a six-month zenith and 10-year Treasury yields approaching a 16-year pinnacle, constrain gold’s growth potential. Meanwhile, global indicators such as the Bank of Japan maintaining ultra-low interest rates and European economic slowdowns continue to influence gold’s trajectory.

Short-Term Forecast: Market Tensions Ahead

Investors are eagerly awaiting the release of the personal consumption expenditures (PCE) price index, the Fed’s chosen inflation metric. This, along with ongoing deliberations in Washington regarding the spending bill, creates a tense atmosphere.

The market’s anticipation around central bank policies and economic data releases over the forthcoming weeks will likely shape gold’s price movements. Given the current dynamics, the outlook appears bearish, with gold prices constrained by the potent combination of political uncertainties and looming rate hikes.

General Observation

The combination of the fundamental and technical indicators suggest a neutral trade. The price action suggests traders are waiting for more news. But what is the key event on the horizon?  Is it the PCE report? The U.S. automakers strike? The U.S. government shutdown.

Technical Analysis

Gold (XAU/USD) is displaying modest fluctuations as it currently trades at 1926.240, slightly below its recent 4-hour close of 1933.100. While the current price stands above the 200-4H moving average of 1918.782, it lingers just below the 50-4H moving average of 1922.873, hinting at short-term consolidation. The 14-4H RSI, reading at 51.56, showcases a neutral momentum, marginally tilted towards the positive side.

Looking at support and resistance levels, the metal finds its primary support between 1893.07 and 1885.790 and faces formidable resistance in the 1946.990 to 1954.880 zone. Weighing these indicators, the near-term market sentiment leans slightly bullish, but caution is advised.