Gold Prices Forecast: Yield Spikes, Fed’s Tightening Policy Driving Sellers

Highlights

• Gold hits 5-month lows as strong U.S. dollar and Treasury yields surge.
• Fed remains committed to curbing inflation despite 11 rate hikes.
• U.S. Treasury yields soar to 10-month high, impacting (XAU/USD) demand.

Overview

Gold (XAU/USD) prices hit five-month lows as the U.S. dollar and Treasury yields surged on positive economic data, reinforcing expectations of the Federal Reserve’s ongoing policy tightening. Following the Fed’s July meeting, policymakers remained committed to combating inflation, acknowledging risks from aggressive rate hikes. Despite 11 rate hikes since March 2022, inflation concerns persist, potentially necessitating more monetary tightening.

Treasury Yields Influence Gold Movement

Benchmark 10-year U.S. Treasury yields reached a 10-month high, driving the dollar to mid-June levels and diverting investors from gold. Wednesday’s Fed meeting minutes indicated further rate hikes, suggesting potential spikes in yields. While the minutes fueled dollar and yield strength, spot gold exhibits signs of stability today, albeit cautiously.

Gold (XAU/USD) Vulnerable to Steep Break

Amidst rising yields and dollar strength, spot gold might plunge if key support at $1893.07 fails. Market sentiment hinges on U.S. yield and dollar index levels, possibly marking a crucial turning point. Analysts anticipate gold price volatility, largely influenced by U.S. rate-related commentary.

Economic Factors Shape Gold Prospects

Potential upside for gold hinges on expected rate cuts in 2024. Despite robust U.S. economic data defying recession predictions, gold’s allure as a safe haven wanes, reflecting reduced investor interest during times of economic uncertainty.

Short-Term Outlook:  Yield Dependent

In conclusion, gold prices reaching five-month lows stem from a resurgent dollar and Treasury yields, fueled by optimistic economic data. The Federal Reserve’s cautious stance on inflation and ongoing rate hikes have shaped the current market landscape. While gold faces pressure from rising yields, the prospect of rate cuts in 2024 remains a potential catalyst for price rebound.

Technical Analysis

The current 4-hour price of Gold (XAU/USD) stands at 1896.08, slightly above the Main Support Area of 1893.07 to 1885.79. The price has a proximity to the 200-4H moving average of 1939.91, indicating potential resistance. The 50-4H moving average at 1915.84 also serves as a significant resistance. The 14-4H RSI at 34.28 suggests bearish momentum.

While the price is near the Main Support Area, the RSI hints at weakening strength. Given the proximity to the 200-4H and the 50-4H moving averages and the bearish RSI reading, the market sentiment leans toward a bearish outlook.