Gold Prices Forecast: XAU/USD Struggling at 50-Day MA, Fed Policy Weighs Heavily

Fed Policy Impact and Short-Term Outlook

As of Friday, Gold (XAU/USD) is slightly down, reflecting traders’ cautious response to Federal Reserve Governor Christopher Waller’s recent statements, which lean towards a hawkish stance. This caution is primarily due to the anticipated speed of Fed rate cuts, which directly affects Treasury yields and the U.S. Dollar, and indirectly influences gold prices.

At 11:39 GMT, XAU/USD is trading $2022.78, down $1.58 or -0.08%.

Technical Perspective

Technically, gold is facing a challenge at the 50-day moving average, a resistance it has been unable to breach for the past three weeks. On the flip side, the 200-day moving average has been providing consistent support since mid-October.

Fed Policy Analysis

Governor Waller’s recent policy speech highlighted the need for more solid evidence of a decrease in inflation before advocating for interest rate reductions. This position comes after January’s Consumer Price Index (CPI) data revealed inflation rates higher than expected. Waller’s cautious approach mirrors a general sentiment within the Federal Reserve, suggesting that while additional rate hikes may not be on the table, the timing and extent of rate reductions are still unclear.

Economic Indicators

The economy’s robust performance, evidenced by a 3.3% annualized growth in GDP and strong employment figures, offers little indication of an imminent recession. These elements support Waller’s inclination towards a gradual approach in easing monetary policy. The rise in January’s CPI, exceeding forecasts, further strengthens this perspective.

Market Reaction

Expectations for a Fed rate cut, initially thought likely at the March 19-20 meeting, have now shifted to a later date, possibly June or even July. Comments from other Fed officials, including Vice Chair Philip Jefferson and Governor Lisa Cook, also suggest a careful approach, focusing on the need for a clearer picture of inflation trends.

Short-Term Forecast

Considering the Federal Reserve’s prudent stance on reducing rates and ongoing inflation concerns, a short-term bearish view on gold prices seems plausible. Despite the technical support, the resistance faced at the 50-day moving average, coupled with the U.S. Dollar’s strength in light of Fed policies, may continue to pressure gold prices downward. Traders should prepare for possible price fluctuations, with upcoming inflation data and Fed communications being key factors in shaping market movements in the near future.

Technical Analysis

Gold (XAU/USD) is lower on Friday after buyers were soundly rejected by the 50-day moving average three times this week. The intermediate trend indicator comes in at $2032.42 today and should be considered resistance.

On the downside, the nearest support is the static level at $2009.00. On the upside, overtaking the 50-day MA could trigger an initial surge to the upside due to pent-up demand. This could lead to an eventual rally into resistance at $2067.00.