Gold (XAU) Forecast: Price Retreats from Record High as Rate Cut Speculation Surges

Gold Retreats from Record High as Rate Cut Speculation Intensifies

Gold prices fell on Friday, pulling back from Wednesday’s all-time high of $2,483.74. Despite the retreat, the precious metal remains on track for its fourth consecutive weekly gain, though traders should prepare for the possibility of a lower weekly close. Spot gold’s decline comes amid profit-taking and market reassessment of recent gains.

At 10:27 GMT, XAU/USD is trading $2403.41, down $31.89 or -1.30%.

Fed Officials Offer Mixed Signals on Rate Cuts

Recent statements from Federal Reserve policymakers have sparked varied interpretations about future rate adjustments. Fed Chair Jerome Powell suggested the possibility of cuts before inflation reaches the 2% target, indicating a potential shift in monetary policy. However, San Francisco Fed President Mary Daly emphasized the need for more evidence of sustained inflation decline, stressing that price stability has not yet been achieved. This divergence in views highlights the ongoing debate within the Fed about the appropriate timing for policy changes.

Market Expectations and Economic Indicators

The CME FedWatch Tool shows traders pricing in a 98% chance of a Fed rate cut in September, reflecting growing market confidence in easing monetary policy. Upcoming economic data, particularly the personal consumption expenditure price index, will play a crucial role in shaping the Fed’s decisions. This data release will be one of the last key indicators before the central bank’s meeting at the end of the month.

Dollar Strength and Employment Data

The dollar index is set to break its two-week losing streak, showing resilience despite rate cut expectations. Recent U.S. labor data revealed a higher-than-expected increase in unemployment benefit applications, though the job market remains generally strong. This mixed economic picture complicates the Fed’s decision-making process.

Gold Price Projections and Market Conditions

Some analysts forecast gold prices reaching $3,000 by autumn 2024, citing anticipated Fed easing as a key driver. However, the current market may be experiencing a “buy the rumor, sell the fact” scenario, potentially trapping late buyers who entered the market as rate cut probabilities peaked. The coincidence of gold topping out as the CME FedWatch tool hit 100% for a September rate cut suggests caution is warranted.

Market Forecast and Risk Considerations

While gold’s medium-term outlook appears positive due to political uncertainty and potential rate cuts, the short-term forecast leans cautiously bearish. Profit-taking and a possibly overextended rally may lead to consolidation or correction. Gold could form a closing price reversal on the weekly chart, potentially triggering a sell-off next week. This technical pattern, if confirmed, could signal a shift in market sentiment and lead to increased selling pressure.

Traders should exercise caution and implement robust risk management strategies, recognizing that the relationship between rate cuts and gold prices isn’t always straightforward. The current market conditions underscore the importance of staying alert and being prepared for potential volatility in the precious metals market.

Technical Analysis

Sellers are hitting XAU/USD on Friday, putting the market in a position to post a potentially bearish closing price reversal top on the weekly chart. This chart pattern won’t change the trend to down, but if confirmed next week, it could produce a two to three week decline.

Switching back to the daily chart, the first target is the short-term pivot at $2385.29. Since the main trend is up, we could see new buyers and a technical bounce, but a failure at this level wil put the 50-day moving average at $2358.75 on the radar. This indicator has to hold as support or prices could collapse.