Gold (XAU) Price Forecast: Dollar Strength Limits Gold Rally Ahead of Key Inflation Data

Gold Prices Decline as Dollar Gains; Focus Shifts to U.S. Inflation Data

Gold prices dipped on Wednesday, weighed down by a stronger U.S. dollar as traders anticipated key U.S. inflation data later in the week. Spot gold retreated after recently reaching a record high of $2,531.60 on August 20. The market is closely watching the upcoming U.S. Personal Consumption Expenditures (PCE) report, which could influence the Federal Reserve’s interest rate decision in September.

At 09:44 GMT, XAU/USD is trading $2510.40, down $14.42 or -0.57%.

Dollar Strength Dampens Gold Prices

The U.S. dollar index edged up slightly, hovering near a 13-month low but showing signs of stabilizing after weeks of decline. The dollar’s strength has put pressure on gold, as a stronger greenback makes the precious metal more expensive for holders of other currencies. This follows a period of sustained weakness in the dollar, driven by expectations of rate cuts from the Federal Reserve.

Fed Rate Cut Expectations Rise

Federal Reserve Chair Jerome Powell’s recent comments have strengthened market expectations for a rate cut at the central bank’s September meeting. Traders are now pricing in a 66% chance of a 25-basis point cut, with a growing minority seeing a 34% probability of a more aggressive 50-basis point reduction. The dovish shift in Fed policy, coupled with the ongoing uncertainty around inflation, has kept gold traders on edge.

Impact of U.S. Economic Data on Market Sentiment

The upcoming PCE report is expected to be a critical factor in shaping market sentiment. This data, closely watched by the Fed as a key gauge of inflation, will likely influence the timing and magnitude of rate cuts. A strong reading could challenge the market’s current consensus, potentially reducing the odds of a more substantial rate cut. Conversely, a weaker-than-expected result could further bolster gold prices by increasing the likelihood of aggressive monetary easing.

Outlook for Gold Prices

Despite the recent pullback, gold remains in a broadly bullish environment, supported by the anticipated start of a Fed rate cut cycle. However, the direction of prices in the near term will largely depend on the forthcoming U.S. economic data, particularly the PCE report. If the data reinforces expectations of lower rates, gold could push towards new highs. On the other hand, a surprise upside in inflation could limit gold’s upside and support the dollar, keeping gold prices in check.

In summary, while the immediate outlook for gold appears mixed, the broader trend remains favorable for the precious metal, especially if the Federal Reserve begins to ease monetary policy as expected. Traders should keep a close eye on the PCE data for clues on the next move in gold prices.

Technical Analysis

Gold (XAU/USD) is edging lower on Wednesday. The recent price action suggests investors are waiting for news. There doesn’t seem to be enough bullish news to encourage traders to buy strength. However, traders have become accustomed to buying dips, which makes a pair of pivots at $2482.00 and $2442.48, possible targets. These levels are followed by the 50-day moving average at $2414.62.