Gold Prices Forecast: XAU/USD Firms as Treasury Yields Dip Ahead of CPI Data

Highlights

• Gold prices touch two-week high, propelled by softer U.S. dollar and diminished Treasury yields.
• Federal Reserve’s recent minutes reveal an internal divide on interest rate trajectory, elevating market uncertainty.
• Looming CPI data could be a game-changer for both the Fed’s interest rate decisions and gold prices.

Gold Prices Soar Amid Fed Uncertainty and Geopolitical Tensions

Gold (XAU/USD) prices surged to a two-week high early Thursday, riding the tailwinds of a softer U.S. dollar and diminishing Treasury yields. The looming release of consumer price index (CPI) data adds another layer of anticipation, potentially impacting both interest rate decisions by the Federal Reserve and the broader market sentiment.

The Fed’s Cautious Stance and Its Impact

Minutes from the Federal Reserve’s September meeting displayed an air of caution, revealing divisions among policymakers on the path of interest rates.

Several Fed officials have also expressed differing opinions on whether further rate hikes are warranted this year, leaving traders speculating about the next moves.

This uncertainty has weakened the U.S. Dollar Index, making gold—an asset that does not yield interest—increasingly attractive. The yields on Treasury bonds have followed a similar pattern, further buoying gold prices.

Economic Indicators: PPI and Upcoming CPI Data

Inflation indicators are under the microscope, with the producer price index (PPI) recently exceeding expectations by rising 0.5% in September, compared to the anticipated 0.3%. However, this pace represents a slowdown from the 0.7% increase seen in August. The CPI data due later today at 12:30 GMT could be a crucial determinant in the Federal Reserve’s rate-setting decisions and thereby influence gold’s market dynamics.

Geopolitical Climate

The current geopolitical scene is also playing a role, with tensions from the Israel-Hamas conflict causing a flight to the safety of Treasury bonds and, indirectly, supporting the bullish case for gold. These factors are contributing to the asset’s allure, despite the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, reporting a fall in its holdings.

Short-Term Forecast

For the short term, the outlook for gold is tilting bullish. Given the Federal Reserve’s ambiguous position on interest rates, a weakened U.S. dollar, and a series of impactful economic indicators, traders are cautiously optimistic. The release of today’s CPI data could serve as the tipping point, setting the course for both interest rates and gold prices in the weeks to come.

Technical Analysis

Daily gold (XAU/USD) at 1879.55, is hovering below both the 50-day and 200-day moving averages, at 1901.79 and 1928.68 respectively, suggesting bearish sentiment in the short and medium-term.

It’s also positioned between the minor resistance level of 1885.46 and the minor support level of 1811.03, indicating a range-bound movement for now.

Though closer to breaking the minor resistance, the price needs to convincingly breach 1904.01, the main resistance, to confirm a bullish turn. This will also put the market on the strong side of the 50-day moving average at 1901.80.

Technically, the overall market sentiment leans bearish, primarily because the price remains under the key moving averages. However, momentum appears to have shifted to the upside, following Friday’s reversal bottom and this week’s subsequent follow-through.