Gold Prices Forecast: XAU/USD Lower as Investors Eye Fed’s Hawkish Stance

Gold Market Update

Gold is trading lower on Tuesday, positioning itself below $2,320 per ounce as traders anticipate the upcoming Federal Reserve meeting on Wednesday. Despite this dip, gold is on track to achieve its third consecutive monthly gain, with an increase of nearly 4% for the month.

At 11:54 GMT, XAU/USD is trading $2312.605, down $22.945 or -0.98%.

Federal Reserve’s Impact

The focus is on the Federal Open Market Committee’s decision due this Wednesday, where a hawkish shift is expected in response to recent inflation trends. Swaps traders have adjusted their expectations, now foreseeing a maximum of two rate cuts by year-end, the fewest since November 2023, according to Bloomberg. Higher interest rates generally dampen gold’s attractiveness since it yields no interest.

Strong Demand and Geopolitical Tensions

Gold’s year-to-date surge of over 12% is supported by robust demand from Asian markets, particularly China, and ongoing geopolitical tensions in regions like Ukraine and the Middle East. The World Gold Council reported a record start to the year in central bank gold purchases. Moreover, a weakening US dollar, partly due to speculation around Japanese intervention in currency markets, has also bolstered gold prices.

Market Outlook and Influences

While geopolitical instability and central bank demand have been key drivers of gold’s recent gains, the focus has shifted towards macroeconomic indicators and central bank policies. The upcoming U.S. non-farm payrolls data and Federal Reserve’s policy direction will be critical in shaping market expectations. Despite the current pullback, analysts from ANZ maintain a positive outlook on gold, anticipating a potential rise to $2,500 after a healthy correction.

Short-Term Forecast

The Federal Reserve’s anticipated hawkish pivot could significantly influence the financial terrain, particularly affecting interest rates and the value of the U.S. dollar. A hawkish stance generally leads to higher interest rates, which could boost the dollar as yields become more attractive relative to other currencies. This strengthening of the dollar typically exerts downward pressure on gold prices, as it becomes more expensive in other currencies, reducing demand.

However, the long-term outlook for gold remains fundamentally bullish. Despite potential short-term declines due to a stronger dollar and higher rates, the ongoing geopolitical risks and sustained demand, especially from central banks and Asian markets, provide strong support for gold prices. Additionally, if the escalation of geopolitical tensions continues, it could revive gold’s appeal as a safe-haven asset, counterbalancing the impact of a stronger dollar.

In summary, while the Fed’s hawkish actions could temper gold’s rise temporarily, the enduring demand and macroeconomic uncertainties suggest that gold’s price path is likely to ascend once these immediate pressures abate.

Technical Analysis

The short-term trend is down, but the intermediate-term trend is up. Despite several days of consolidation, traders remain nervous because of the current distance between the short-term bottom and the uptrending 50-day moving average.

A sustained break under the April 23 short-term bottom at $2291.46 could trigger an acceleration to the downside into the 50-day moving average at $2218.07.

However, recapturing the minor top at $2352.64 could breathe some life into the lingering bulls.