Gold Prices Forecast: XAU/USD to Face Pressure from Rising Treasury Yields

Weekly Gold Market Recap

Last week, the gold market was influenced by several U.S. economic reports, including the Consumer Price Index (CPI), retail sales, and the Producer Price Index (PPI). These reports had varied impacts on the probability of a Federal Reserve rate reduction, affecting Treasury yields, the US Dollar, and dollar-denominated gold.

XAU/USD recorded a decrease for the second week in a row, closing at $2013.23 which is a reduction of $11.13 or -0.55%. This drop in gold prices was largely due to strong inflation data, which reduced the likelihood of a near-term rate cut by the Federal Reserve.

The dollar index rose over the week, and the benchmark 10-year Treasury yield also increased, reducing gold’s appeal. Reports showed an unexpected rise in U.S. producer prices in January, reinforcing the expectation of continued high-interest rates. Although gold is typically seen as a protection against inflation, the prospect of higher rates reduces its appeal, as gold does not yield interest.

Predictions indicate that gold might face challenges in maintaining levels above $2,000, given the Federal Reserve’s expected decision against cutting interest rates in March. U.S. economic growth remains strong, indicating ongoing inflation, which is a challenging factor for gold. Market expectations for a U.S. interest rate reduction have shifted from March to June, with a 73% likelihood of a cut in June, according to the CME Fed Watch Tool.

Weekly Gold Market Forecast

For the upcoming week, gold prices are expected to continue their downward trend, potentially reaching the mid-$1,960s. This forecast is based on the delayed prospects of a Fed rate cut and ongoing economic strength in the U.S., leading to persistent inflation.

Recent data showed U.S. Treasury yields rising after unexpectedly high U.S. PPI data. The 10-year Treasury yield approached 4.3%, and the 2-year Treasury yield also saw a notable increase. These developments indicate a change in investor expectations, now foreseeing a later action from the Fed regarding rate reductions.

U.S. retail sales experienced a significant decrease in January, surpassing forecasts, while the labor market remained robust. This mix of economic indicators has introduced uncertainty in the market, affecting expectations about future monetary policy and interest rates.

The dollar remained stable, though it saw a slight pullback following the producer price data. As the market approaches the Presidents’ Day holiday, temporary changes in trading patterns may occur.

In summary, the gold market in the coming week is likely to be influenced by ongoing economic data releases, statements from Fed officials, and global economic indicators. Investors will be closely watching these factors to determine the future direction of gold prices.