Gold (XAU) Forecast: Dollar Strength Threatens Recent Gains

Gold Prices Retreat as Dollar Strengthens

Gold prices pulled back on Thursday, erasing gains made after Federal Reserve Chair Jerome Powell’s comments about potential rate cuts. The precious metal’s retreat was primarily driven by a resurgent U.S. dollar.

At 10:43 GMT, XAU/USD is trading $2435.29, down $12.28 or -0.50%.

Fed Signals Possible Rate Cut

Powell indicated on Wednesday that a September interest rate cut might be considered, suggesting the central bank is nearing the end of its inflation battle. This initially propelled gold to two-week highs, approaching its recent record of $2,483.60 set on July 17.

Market Reactions

Despite the Fed’s dovish tone, the dollar’s rebound overshadowed gold’s appeal. Peter Fertig, analyst at Quantitative Commodity Research, noted, “Powell putting a possible rate cut in September on the table is supportive for gold. But on the other hand, you now have a slightly firmer U.S. dollar and weaker euro, and that is a negative effect.”

Treasury Yields and Economic Data

U.S. Treasury yields hit multi-month lows on Thursday as investors digested Powell’s comments. However, the market’s focus has now shifted to Friday’s U.S. payrolls report. A stronger-than-expected job growth could cast doubt on a September rate cut.

Central Bank Gold Demand

Citi analysts predict central bank gold demand will remain high in 2024/2025, citing trends of de-dollarization, reserve diversification, and alternative fiat demand among emerging market central banks.

Global Economic Landscape

The Bank of England is set to announce its latest interest rate decision, with analysts divided on the outcome. In the U.S., weekly initial jobless claims data and manufacturing sector insights are due Thursday, preceding Friday’s crucial jobs report.

Market Forecast

The short-term outlook for gold could turn bearish due to the strengthening dollar. However, the medium to long-term prospects remain bullish, supported by potential rate cuts, ongoing geopolitical tensions, and sustained central bank demand. Traders should remain cautious of short positions near range lows and monitor upcoming economic data closely for potential market-moving events.

Technical Analysis

Gold (XAU/USD) is lower, but still on the strong side of a pair of 50% levels at $2418.47 and $2380.54. Additionally, it’s also trading on the bullish side of the 50-day moving average at $2362.60, which is the major support.

The daily chart shows the market has a clean shot at the record high at $2483.74. However, buyers may be waiting for a catalyst to spike prices into this level.