Gold Prices Forecast: XAU/USD Struggles Amid Robust US Data, Fed Rate Views

Highlights

• Gold (XAU/USD) rallies but faces a weekly drop.
• U.S. data remains strong, bolstering dollar.
• Fed’s interest rate decisions in focus.

A Complex Dance with the Dollar

Gold (XAU/USD) witnessed an upward movement as the U.S. Dollar took a step back on Friday. However, despite this temporary rally, the yellow metal is on track for a weekly drop. The reason behind this decline can be attributed to traders overlooking the anticipated temporary pause by the Federal Reserve, choosing instead to zero in on consistent robust U.S. data.

Robust U.S. Economic Performance

The U.S. economy seems to stand strong, with the dollar marking its longest weekly gain in almost a decade, fueled by a series of resilient economic indicators. These include the expansion of the U.S. services sector this August and an unexpected decrease in jobless claims, reaching a low not seen since February. These figures position the U.S. as a vital bastion of strength in the world economy.

Fed’s Stance on Interest Rates

Recent times have seen the Fed intensifying its fight against inflation, resulting in the benchmark lending rate being elevated 11 times in the past year and a half. This frequency brings the rate to a peak that hasn’t been witnessed for over two decades, addressing inflation which continues to hover above its desired target. Although the summer saw a deceleration in the pace of these hikes, the overall sentiment remains vigilant. In fact, traders predict over a 90% probability that the Fed will maintain rates in September.

Echoing Views on Rate Hikes

Statements from various Fed officials indicate caution, suggesting the need to further evaluate data and the overall economic outlook. Lorie Logan, Dallas Fed President, emphasized the importance of readiness for future rate adjustments to counteract inflation. Meanwhile, Fed Governor Christopher Waller expressed the need for prudence, hinting at the weakening jobs market as a significant concern.

Short-term Forecast

While gold currently faces headwinds from a potent U.S. dollar and expectations of further rate hikes, its attraction diminishes when juxtaposed with the rising returns from Treasury bonds. The short-term outlook remains cautiously bearish for gold, awaiting clear cues from the Federal Reserve’s imminent decisions.

Technical Analysis

Based on the 4-hour chart data for Gold (XAU/USD), the current price of 1925.83 is just below the 200-4H moving average of 1927.69 and the 50-4H moving average of 1933.30. This positioning suggests a slightly bearish sentiment. The 14-4H RSI reading at 49.17 is almost neutral but leans towards weakened momentum.

The current price is close to the main support area, ranging from 1893.07 to 1885.79, but is well below the main resistance area between 1946.99 and 1954.88. Overall, the market sentiment appears to be cautiously bearish, as the commodity is trading below key moving averages and near the support levels.