Gold Prices Forecast: XAU/USD Spikes Over $25 as Dollar Drop Spurs Demand

Gold is trading sharply higher on Tuesday, driven by key economic factors including the recent downturn in the U.S. Dollar and Treasury yields. The upswing in gold is occurring amidst speculations about future actions by the Federal Reserve and upcoming economic data releases.

At 10:51 GMT, XAU/USD is at $2196.23, up $24.425 or +1.12%.

Treasury Yields and Economic Outlook

The 10-year U.S. Treasury yield has seen a minor decrease, mirroring investor reactions to the latest economic indicators and expectations for imminent inflation data. The focus is on the upcoming release of the personal consumption expenditures price index, essential in shaping forecasts regarding the Federal Reserve’s interest rate decisions. Despite signals from the Federal Reserve about possible rate cuts this year, the specifics in terms of scale and timing are still unclear.

Dollar’s Role

The dollar index has registered a slight decrease, distancing itself from its recent high. This drop is in part due to Federal Reserve officials hinting at a potential 0.25% rate cut in June. The movement of the dollar is also being influenced by a stronger yen and the anticipated release of the U.S. core personal consumption expenditures data, set to have a significant impact on future U.S. interest rate directions.

Federal Reserve’s Approach

Recent comments from Federal Reserve authorities, including Chicago Fed President Austan Goolsbey and Fed Governor Lisa Cook, indicate a strategy of caution towards reducing interest rates. The Federal Reserve appears to be awaiting more solid economic data before proceeding with rate cuts, in contrast to the market’s expectations of immediate reductions.

U.S. Interest Rate Forecast

Market predictions currently show a 70% chance of the Federal Reserve initiating rate reductions in June. This forecast aligns with a broader expectation of a 75 basis point cut in interest rates by 2024. In this context, gold becomes a more attractive investment, as lower interest rates diminish the cost of holding the precious metal.

Gold Trust Holdings and Upcoming Reports

The holdings in SPDR Gold Trust have remained stable, indicating a steady interest in gold from investors. The market is now anticipating the release of the U.S. core personal consumption expenditure price index data, crucial for a deeper understanding of inflation trends and for guiding future monetary policy decisions.

Short-Term Forecast

With the current economic data and the Federal Reserve’s cautious stance, the short-term outlook for gold prices is leaning bullish. The interplay between Treasury yields, the dollar’s performance, and the pending economic data will be key in shaping the near-term valuation of gold. Long-term support is coming from continual central bank buying. This should offer protection against a steep decline.

Technical Analysis

Gold (XAU/USD) is posting a significant gain on Tuesday, putting it in a position to possibly challenge the recent record high at $2222.915.

A new main bottom has formed at $2146.155. A trade through this level will change the main trend to down. Given that there is plenty of room to the downside, this could trigger a steep decline with the primary target the 50-day moving average at $2073.585. This indicator is controlling the intermediate trend.