Gold (XAU) Price Forecast: Will Rising Yields and Fed’s Hawkish Stance Keep Gains Capped?

Gold Slips as Fed Policy and Rising Yields Weigh on Weekly Performance

Gold prices ended the week at $2,622.03, posting a modest loss of $1.57 or 0.06%. This marks another week of subdued performance as rising U.S. Treasury yields and a strengthening dollar continue to pressure bullion. Despite ongoing geopolitical tensions, economic forces dominated price action, reflecting the market’s sensitivity to Federal Reserve policy and U.S. economic strength​.

Fed’s Hawkish Outlook Remains a Headwind

The Federal Reserve’s stance remains the central theme shaping gold’s performance. While December’s 25 basis point rate cut initially lifted prices, sentiment shifted as the Fed signaled only two rate cuts in 2025, down from four projected earlier​. This cautious path underscores the Fed’s confidence in the economy’s resilience and lingering inflation concerns.

Fed Chair Jerome Powell reiterated that rate cuts would proceed carefully, citing the need to manage inflation while balancing strong consumer demand and employment data. For gold, this policy outlook dampens the metal’s appeal, as higher interest rates raise the opportunity cost of holding non-yielding assets. Traders who previously anticipated aggressive easing are now adjusting their positions, reinforcing gold’s downward trajectory.

Yields and Dollar Strength Pressure Gold

A key factor behind gold’s weekly decline was the surge in U.S. Treasury yields. The 10-year yield rose to 4.641%, the highest since May, reflecting market confidence in the Fed’s tighter-for-longer approach​. Rising yields draw investors away from gold and into interest-bearing assets, further reducing demand.

The dollar’s strength compounded the pressure on gold. The U.S. dollar index advanced for the fourth consecutive week, driven by economic data that showed ongoing labor market resilience​. Lower-than-expected jobless claims reinforced expectations that the Fed may not need to accelerate rate cuts, boosting the greenback and making gold more expensive for international buyers.

Geopolitical Tensions Offer Limited Support

Despite economic headwinds, geopolitical uncertainties have provided gold with intermittent support. Heightened tensions in Eastern Europe and the Middle East, including Israeli airstrikes and ongoing conflict in Ukraine, continue to keep safe-haven demand alive​. While this has prevented sharper losses, it has not been sufficient to drive sustained upside momentum.

Additionally, the possibility of Donald Trump’s return to the White House in 2025 adds another layer of uncertainty. Potential trade conflicts and protectionist policies could disrupt markets, offering a bullish backdrop for gold in the longer term​.

Looking Ahead

Gold’s direction next week will hinge on Treasury yields, dollar strength, and upcoming U.S. economic data. While geopolitical risks remain supportive, the dominant drivers remain Fed policy and interest rates. If yields continue to climb, gold may face further declines. However, weaker economic data or dovish Fed commentary could provide the spark needed to reignite buying interest.

More Information in our Economic Calendar.