Gold Prices Forecast: XAU/USD Dips as Fed and Dollar Stir the Pot

Highlights

• Gold prices languish near seven-month lows amid a potent U.S. dollar and Federal Reserve ambiguity.
• Strong U.S. jobs data for August underpins greenback, putting added downward pressure on gold.
• Benchmark U.S. 10-year bond yields soar to 16-year highs, diminishing allure for non-interest-paying gold.
• Analysts warn of a “final liquidation break” as the Federal Reserve’s rate-hike cycle nears its end.

Dollar Strength and Rate Hike Speculations Dent Gold Prices

Gold is hovering near a seven-month low, as traders juggle multiple factors, from a strengthening U.S. dollar to potential shifts in Federal Reserve policy. As of Wednesday, Spot Gold (XAU/USD) is trading at $1818.77, marking a 0.25% dip, while December Comex Gold futures stand at $1833.60, down by 0.43%.

Strong U.S. Jobs Data and Rising Bond Yields

The U.S. jobs market is robust, with unexpected increases in job openings reported in August. This strong data has supported the greenback and contributed to gold’s decline. Concurrently, benchmark U.S. 10-year bond yields have hit 16-year highs, affecting demand for the non-interest-paying bullion.

Analyst Views on Gold’s Near-term Outlook

Some market analysts suggest that the downtrend in gold prices may not persist, as most heavy selling pressure has been already priced in. However, there’s caution against premature optimism as the Fed’s rate hike cycle nears its end, traditionally a painful period known for “final liquidation breaks” in interest rate-sensitive and dollar-denominated assets like gold.

Fed’s Position on Future Rate Hikes

Meanwhile, Federal Reserve officials are divided over the need for another rate hike this year but agree that rates need to remain elevated for an extended period. This is adding to the current volatility. Two more Fed policy meetings are scheduled this year, with market pricing pointing to a 25.7% chance of a rate hike on Nov 1 and a nearly 45% probability in December.

Short-term Forecast: Bearish

Given the strong U.S. dollar, rising bond yields, and looming Fed decisions, the short-term outlook for gold remains bearish. Market participants are keenly awaiting upcoming economic data and Fed meetings to gain more clarity on gold’s future trajectory.

Technical Analysis

Gold (XAU/USD)’s daily price of 1820.49 sits significantly below both the 200-Day and 50-Day moving averages, at 1927.79 and 1912.87 respectively, suggesting a bearish outlook. Moreover, the current daily price falls beneath the trend line support of 1915.43, pointing to a potential acceleration to the downside.

On the level front, the asset is currently trading closer to the main and minor support levels (1889.37 and 1883.28) than the resistance levels, further supporting a bearish view.

Given these observations, the prevailing market sentiment for Gold appears to be bearish.