Gold (XAU) Price Forecast: Dollar Strength and Yields Challenge Upside Momentum

Gold Prices Slip as Dollar Strengthens and Yields Rise

Gold edged lower on Wednesday, retreating from a one-week high as the U.S. dollar recovered and Treasury yields climbed. Despite safe-haven demand driven by geopolitical concerns, the metal faces headwinds from a stronger dollar and shifting Federal Reserve rate expectations.

At 11:33 GMT, XAU/USD is trading $2624.70, down $7.50 or -0.28%.

Where Is Gold Headed After Its Recent Rally?

Gold’s recent rally is slowing, with sellers poised to re-enter if prices approach key resistance zones. The 50-day moving average at $2658.54 and a retracement range between $2663.51 and $2693.40 could cap gains in the near term. With the short-term trend still bearish, the four-day range of $2536.85 to $2641.94 remains pivotal. A move lower could test support near the pivot at $2589.39, signaling further consolidation.

Is a Stronger Dollar Weighing on Gold?

The U.S. dollar index rebounded 0.3% to 106.42, pressuring gold by making it more expensive for overseas buyers. Profit-taking and dollar strength have overshadowed safe-haven flows tied to geopolitical tensions. The greenback’s recovery follows recent expectations for U.S. fiscal policies likely to drive inflation while reducing the pace of Federal Reserve rate cuts. CME’s FedWatch Tool places the odds of a 25-basis-point cut in December at 58.9%, with a 41.1% chance of rates holding steady. Higher rates diminish gold’s appeal as a non-yielding asset.

Can Geopolitical Tensions Support Gold Prices?

Rising geopolitical risks stemming from the Russia-Ukraine conflict have offered underlying support for gold. Russian President Vladimir Putin’s adjustments to nuclear policy and Ukraine’s use of U.S.-made long-range missiles have raised concerns of escalating conflict. While this has spurred safe-haven buying, its impact has been limited as traders focus on profit-taking and the strengthening dollar.

How Are Treasury Yields Shaping Gold’s Outlook?

Treasury yields moved higher as investors digested geopolitical developments and weaker-than-expected U.S. housing data. Upcoming remarks from Federal Reserve officials and economic reports, including S&P Global’s flash PMI data, are likely to influence sentiment further. A pause in rate cuts could pressure gold in the short term, though easing monetary policy and sustained safe-haven demand may support prices in the longer term.

Market Forecast

Gold prices are expected to face resistance in the $2663.51 to $2693.40 range while finding support near $2589.39. Short-term pressure from the strengthening dollar and rising yields may limit upside potential. However, persistent geopolitical risks and expectations for a looser Fed policy into 2024 suggest a cautiously bullish long-term outlook for the yellow metal. Traders should monitor economic data and Fed commentary for potential shifts in momentum.