Gold Prices Forecast: XAU/USD Hits 7-Month Low Amid Rate Hike Uncertainty

Highlights

• Gold (XAU/USD) prices hit a seven-month low, extending losses for a sixth straight session.
• U.S. dollar’s strength and Fed policy are the chief headwinds for the yellow metal.
• Federal Reserve officials Kashkari and Williams offer conflicting rate hike forecasts.
• Market split on rate hikes: 45% chance of another hike, 43% chance of easing in H1 2024.

Gold’s Downward Spiral Amid Rate Uncertainty

Gold (XAU/USD) prices are down sharply for the sixth straight session on Monday, touching a nearly seven-month low. This downturn comes as traders analyze U.S. inflation metrics and brace for upcoming job market data. The dollar’s strength continues to be a significant headwind for the yellow metal, which ended Q3 3.7% lower, marking its steepest quarterly decline since June 2021.

Mixed Signals from the Fed

The Fed’s policy tightening seems to be impacting various sectors as recent U.S. data softens. Even as underlying inflation moderated in August, according to the core PCE price index, there’s uncertainty about whether current interest rate levels are adequate to curb inflation. Federal Reserve officials Neel Kashkari and John Williams offered differing views on the path of rate hikes, adding to the market’s confusion.

Interest Rates and Treasury Yields

Higher interest rates have lifted the dollar near a 10-month high and taken a toll on gold, which does not yield interest. Meanwhile, U.S. 10-year Treasury yields pulled back after touching a 15-year high, reflecting mixed inflation expectations. The market is split, with a 45% chance of another rate hike this year and a 43% probability of policy easing in H1 2024, as per CME FedWatch Tool data.

Gold’s Shaky Demand Outlook

Gold’s future is increasingly tied to the interest rate environment. Moreover, demand for gold as a safeguard against economic instability remains but is under threat from the U.S.’s cloudy economic outlook.

Short-Term Forecast

Overall, the short-term forecast for gold is bearish. Traders should exercise caution, especially given the conflicting signals about interest rate hikes and inflation from the Federal Reserve.

Technical Analysis

The current daily price of Gold (XAU/USD) at 1842.45 is below both the 200-Day and 50-Day moving averages of 1927.61 and 1919.05, respectively. This signals a bearish trend.

The 14-Day RSI at 22.84 underscores an oversold market condition, which might suggest a potential, though not guaranteed, rebound.

The price is below both the main and minor support levels (1883.28 and 1889.37), further amplifying the bearish sentiment. Additionally, the current price is well below the trend line support of 1913.18, suggesting a potential acceleration to the downside.

While support and resistance levels should be watched closely for any potential reversals, the prevailing market sentiment, at least for now, leans strongly bearish.