Gold (XAU) Price Forecast: Is Safe-Haven Demand Enough to Counter Dollar Strength?

Gold Prices Decline as Strong U.S. Jobs Data and Dollar Strength Dominate

Gold prices struggled this week, slipping slightly after a robust U.S. jobs report and the strengthening U.S. dollar weighed on sentiment. While geopolitical tensions in the Middle East provided some safe-haven demand, the metal was unable to maintain its upward momentum, with prices closing lower at $2653.84, down 0.18%​.

Strong U.S. Jobs Data Dampens Hopes for Aggressive Rate Cuts

The U.S. labor market data released on Friday showed an unexpected gain of 254,000 nonfarm payroll jobs in September, significantly above expectations of 150,000​. This report reduced hopes for a larger rate cut by the Federal Reserve at its next policy meeting in November. Traders slashed the odds of a 50-basis-point rate cut, which dropped from 28% to just 6% after the report was published​.

Fed Chair Jerome Powell had already indicated that the pace of rate cuts would slow, reinforcing market expectations for a 25-basis-point cut​​. With inflation still above the Fed’s target and the labor market showing resilience, the pressure for aggressive rate cuts has eased, further weighing on gold.

U.S. Dollar Strength and Rising Treasury Yields Weigh Heavily

As the U.S. dollar surged to a seven-week high on the back of the stronger jobs data, gold’s appeal diminished. The dollar index closed at 102.487, marking its best week since September 2022​. A stronger dollar makes gold more expensive for foreign buyers, contributing to the metal’s decline.

Adding to gold’s pressure, U.S. Treasury yields also increased, with the 10-year yield rising to 3.97%​. Higher yields make interest-bearing assets more attractive compared to gold, which does not provide a return, leading to a further drop in demand for the precious metal.

Geopolitical Tensions Offer Limited Support

Despite the intensifying conflict in the Middle East, with tensions escalating between Israel and Iran-backed Hezbollah, gold failed to capitalize significantly on safe-haven flows. Although geopolitical risk typically supports gold prices, the strong U.S. dollar and rising yields outweighed these concerns​​.

Analysts, such as Phillip Streible from Blue Line Futures, noted that if the Middle East situation deteriorates further, gold could quickly rise toward $2700​. However, in the short term, the geopolitical situation has only provided limited support to gold.

Gold Prices Forecast: Bearish Short-Term Outlook

In the coming week, gold is likely to face continued downward pressure. The stronger U.S. labor market data and rising Treasury yields have reduced the likelihood of aggressive Fed rate cuts, which is bearish for gold. Prices could test the key support level at $2616.25, and a break below this level may lead to further declines toward $2578.24​.

On the upside, any unexpected geopolitical developments or weaker-than-expected economic data could provide a short-term boost to gold prices. However, with the U.S. dollar and yields remaining strong, the short-term outlook leans bearish for gold.

Essentially, if you’re following traditional fundamentals then you are leaning toward bearish because of rising yields and the strengthening dollar. If you’re speculating on an escalation of the fighting in the Middle East, then your bias is likely to the upside.