Gold Prices Forecast: XAU/USD on Track for Weakest Performance in Six-Weeks

Key Points

• Gold is in a position to post its worst performance in six weeks.
• Dollar strength and bond yield increases weighing on gold prices. 
• Fed’s stance on rate cuts alters gold’s longer-term outlook. 

Current Trends in Gold Prices

Gold prices are currently rising, yet they are on track for their weakest performance in six weeks. This trend is unfolding as the U.S. dollar strengthens and bond yields increase, in response to Federal Reserve officials countering the expectations for early interest rate cuts.

Influencing Factors

Spot gold (XAU/USD) is rising by 0.2% to $2,027.39 per ounce as of 0743 GMT, although it is experiencing a decline of over 1% this week. Simultaneously, U.S. gold futures are increasing by 0.4% to $2,029.60.

Traders are adjusting their expectations for rate cuts due to recent economic data surpassing forecasts and the Fed’s hawkish stance, which is offsetting the safe-haven demand from Middle East geopolitical tensions.

Currency and Bond Yield Movements

The dollar index is slightly decreasing by 0.1% but is up nearly 1% this week, heading for a second consecutive weekly gain. This rise is due to signs of resilience in the U.S. economy and the Fed’s caution regarding rate reductions.

Concurrently, Treasury yields are continuing to rise, reacting to the latest jobs data and comments from Federal Reserve officials. Yields on the benchmark U.S. 10-year Treasury notes are touching a five-week high of 4.1730%.

Economic Data and Fed Outlook

The U.S. economy is showing strong signs, with recent economic indicators such as unexpectedly low weekly jobless claims and robust retail sales data. Federal Reserve Governor Christopher Waller and Atlanta Fed President Raphael Bostic are expressing views on future rate cuts, suggesting a methodical approach. Markets are now less expecting a rate cut in March, with the likelihood dropping to 55% from about 71% last week.

Short-Term Gold Market Forecast

In the short term, the outlook for gold is leaning towards bearish. The strengthening dollar, rising bond yields, and adjusted expectations for Fed rate cuts are collectively exerting downward pressure on gold prices. Despite some support from geopolitical risks, the current economic data and Fed commentary are indicating a likely decline in gold prices in the near future.

Technical Analysis

The fundamentals may be bearish, but the daily chart pattern suggests there may be some life left in the gold market with buyers pushing XAU/USD back above the 50-day moving average at $2020.18. This move follows a successful test of the support at $2009.00.

Traders should continue to monitor gold’s reaction to the 50-day throughout the session as this should have a major impact on how it finishes the week.

The key concern remains the downside risk however. Crossing to the weakside of the 50-day could lead to a quick test of support. However, a third test of this level could lead to failure and an acceleration to the downside with the 200-day moving average at $1963.73 the next likely target.