Gold (XAU) Forecast: Dollar Weakness and Falling Yields Set Stage for Continued Rally

Bullish Week Despite Late Pullback

Gold prices retreated on Friday due to profit-taking after a strong rally earlier in the week. However, the precious metal still logged an impressive weekly gain of $55.48 or 2.32%, settling at $2442.50. The bullish sentiment was driven by a combination of geopolitical tensions and expectations of Federal Reserve rate cuts.

Safe-Haven Demand Rises

Escalating conflicts in the Middle East, including the killing of Hamas leaders, fueled safe-haven demand for gold. The assassination of Hamas’ political leader in Tehran and fears of retaliatory strikes by Iran and its proxies bolstered gold’s appeal as a hedge against geopolitical risks.

Fed Rate Cut Expectations Boost Gold

Federal Reserve Chair Jerome Powell’s comments suggesting a potential September rate cut significantly impacted gold prices. The CME Group’s FedWatch tool showed a sharp increase in trader bets for a 50-basis-point cut in September, rising from 11.8% earlier in the week to 28.5%.

U.S. Jobs Report Influences Market

The weaker-than-expected U.S. jobs report released on Friday added to the bullish case for gold. With only 114,000 jobs added in July, well below the expected 185,000, and unemployment rising to 4.3%, expectations for Fed rate cuts strengthened further.

Dollar Weakness and Falling Yields

The U.S. dollar hit a four-month low following the jobs report, while Treasury yields tumbled to their lowest levels since December. These factors made gold more attractive to investors, as lower yields reduce the opportunity cost of holding non-yielding bullion.

Market Forecast: Bullish Outlook Persists

The short-term outlook for gold remains bullish, supported by:

1. Continued geopolitical tensions in the Middle East
2. Increasing likelihood of Fed rate cuts
3. Weakening U.S. dollar and falling Treasury yields
4. Strong central bank purchases and potential renewed ETF investor demand

Analysts suggest the year-end target of $2,500 might be reached sooner if current trends persist. However, traders should be prepared for potential volatility and short-term pullbacks due to profit-taking at these elevated levels.

Conclusion

While gold faced a slight retreat on Friday, the overall weekly performance and market conditions point to a continued bullish trend. Investors should closely monitor geopolitical developments, upcoming economic data releases, and Fed member comments for further directional cues in the precious metals market.