Gold (XAU) Price Forecast: Benefiting from Weaker Dollar as Investors Await US Economic Reports, Fed Meeting

Highlights

• Weaker dollar benefits gold prices
• U.S. economic data and Fed meeting will influence gold prices
• Underpinned by concerns over U.S. Treasury debt limit

Overview

Gold (XAU) prices started the week on a positive note, edging higher on Monday. However, the market is struggling to maintain momentum on Tuesday despite a dip in U.S. Treasuries and a weaker U.S. Dollar. This caution is due to the upcoming release of U.S. growth and inflation data, which is likely to have a significant impact on the Federal Reserve’s policy decisions during its May 2-3 meeting.

Historically, higher yields tend to weigh on demand for non-yielding gold prices. However, with the current dip in U.S. Treasuries, we may see an increase in demand for gold. Additionally, a weaker dollar tends to make gold more attractive for buyers holding other currencies.

At 06:41 GMT, Gold (XAU) is trading $1994.42, down $0.69 or -0.03%. On Monday, the SPDR Gold Shares ETF (GLD) settled at $184.80, up $0.55 or +0.30%.

Gold Prices Strengthen Amid Economic Outlook

Gold prices are currently benefiting from a weaker dollar, but the focus remains on upcoming U.S. economic data and the Fed meeting to determine its stance on rate hikes for the rest of the year. During this period, prices may remain in a $50 trading range.

Monday’s Dallas Fed report revealed a contraction in manufacturing activity in Texas, which underscores the economic impact of the Fed’s rate tightening cycle.

Investors Await Fed Hike Impact

The market is anticipating a 25-basis-point hike by the Fed during its May 2-3 meeting, with an 87.2% chance currently priced in. Investors are eagerly awaiting the U.S. consumer confidence report, the core personal consumption expenditures index, and the GDP quarterly growth rate, all scheduled for this week. These reports are expected to weaken the U.S. Dollar, thereby strengthening gold prices in the short term.

Investors Seeking Low-Risk Opportunities

Meanwhile, concerns over the U.S. Treasury Department hitting its debt limit in the coming months are causing some investors to avoid certain Treasury bills and seek out low-risk investment opportunities. In terms of physical market activity, the world’s largest gold-consuming nation experienced a 12% year-on-year increase in gold consumption during January-March.

Technical Analysis

From a daily technical perspective, the longer-term trend is up, but the short-term trend is neutral. This is creating a sideways trade with the price action concentrated around the mid-point of R1 at $2045.30 and a PIVOT at $1927.36. This $1986.33.

The price action suggests investor indecision and impending volatility. This usually means investors are waiting for fresh news to drive the next major move.

The gold market is giving investors two choices at this time:  Wait for a break into the support PIVOT at $1927.36, or play for a breakout over R1 at $2045.30.

For a look at all of today’s economic events, check out our economic calendar.