Gold (XAU) Price Forecast: Strong Dollar and Inflation Fears Keep Traders on Edge

Gold Prices Edge Lower on Strong Dollar and Middle East Uncertainty

Gold prices are easing lower on Wednesday, trading just below the record high of $2,685.64. The precious metal’s gains are being held back primarily by a stronger U.S. Dollar, which remains a key factor influencing gold’s movement. Traders are also weighing potential disruptions from the ongoing conflict in the Middle East and its impact on the Federal Reserve’s interest rate plans.

At 12:16 GMT, XAU/USD is trading $2647.52, down $16.09 or -0.60%.

Geopolitical Tensions and Oil Supply Fears Weigh on Markets

As fighting escalates in the Middle East, traders are growing increasingly concerned about potential disruptions to oil supplies, particularly with rumors circulating about $100 per barrel crude oil. Such a rally could add inflationary pressure at a time when the Federal Reserve seems to have inflation largely under control. The uncertainty surrounding the conflict has kept gold prices within striking distance of recent highs, as investors flock to safe-haven assets like gold. However, gold’s upside has been tempered by the strength of the U.S. Dollar, another safe-haven asset.

Kinesis Money market analyst Carlo Alberto De Casa remarked, “Gold is just seeing some short-term pressure due to a stronger dollar, but the environment remains extremely favorable for gold.”

Technicals Signal Caution for Gold Bulls

On the technical side, gold traders are closely watching key support levels. The minor pivot at $2,616.25 is the critical level for the bulls. Should gold prices break below this point, further declines are likely, with the next target zone between $2,546.86 and $2,531.77. Traders will need to watch these levels carefully, especially in the context of rising geopolitical risks and the uncertain rate outlook from the Federal Reserve.

Focus Shifts to U.S. Jobs Data and Federal Reserve Signals

Looking ahead, traders are turning their attention to upcoming U.S. employment data, which could offer further clues on the Fed’s monetary policy. Wednesday’s ADP employment report and Friday’s nonfarm payrolls report are both likely to influence gold prices, particularly if the data points to further economic weakness. Currently, traders see a 38% chance of a 50-basis-point rate cut from the Fed in November. Fed Chairman Jerome Powell has indicated that additional rate cuts are possible, though he signaled earlier this week that the pace of easing may slow.

Gold Prices Forecast: Short-Term Cautiously Bullish with Key Support at $2,616

While gold remains supported by geopolitical risks, the stronger U.S. Dollar and uncertain Fed policy are keeping a lid on any significant rally. If the upcoming U.S. jobs data disappoints, it could bolster the case for further rate cuts, potentially driving gold to new highs. However, in the short term, gold could see further downside pressure if it breaks below the $2,616.25 pivot. Traders should remain cautious as volatility in both the dollar and global markets continues to play a critical role in gold price movements.