Gold Price Forecast: XAU/USD Rises on Fed Rate Cut Speculation, Awaits Key US Economic Data
Author: Anil Panchal | Source: FXStreet
Gold (XAU/USD) prices continue to gain traction, surging past the $2,050 level amid growing investor expectations of potential interest rate cuts by the US Federal Reserve in 2024. The yellow metal climbed during early trading sessions and held above this key psychological resistance, driven by dovish sentiment surrounding the future path of US monetary policy and a modest softening of the US dollar.
Throughout the week, market participants focused keenly on Federal Reserve meeting minutes and key economic indicators, including US PMI data, durable goods orders, and jobless claims. These data points are increasingly being interpreted as signs that the Federal Reserve’s aggressive monetary policy tightening may have peaked, generating momentum for non-yielding assets like gold.
Gold Finds Support Amid Easing US Treasury Yields
Gold’s recent gains correlate closely with a decline in US Treasury yields, particularly the 10-year benchmark bond. Yields have pulled back notably from multi-year highs reached in October 2023, dropping below the critical 4.40% level. This retreat signals a shift in market expectations, with traders becoming less confident in the durability of high interest rates. Lower Treasury yields diminish the opportunity cost of holding gold, which does not provide periodic payouts, thereby making it more attractive in a soft-rate environment.
Key factors affecting yields and interest rate expectations include:
– Fed commentary suggesting a pause or potential pivot in monetary policy.
– Weaker-than-expected inflation data, as reflected in the recent US Consumer Price Index (CPI) and Producer Price Index (PPI) releases.
– Cooling labor market trends, including rising weekly jobless claims and a decline in job openings.
These signals support the narrative that the Fed may adopt a more dovish stance in early 2024, possibly opting to reduce rates earlier than previously expected to avoid a hard landing for the US economy.
Fed Rate Cut Expectations Fuel Gold Rally
Investors are increasingly betting that the Federal Reserve will move to cut interest rates as early as the second quarter of 2024. CME Group’s FedWatch Tool shows a more than 50% probability of at least one 25-basis point rate cut by May 2024. Market expectations are reacting to the growing belief that inflation has peaked and that economic activity is moderating.
Gold, traditionally considered a hedge against inflation and currency debasement, tends to outperform during periods of monetary easing. Furthermore, geopolitical uncertainty and global economic volatility also create tailwinds for gold’s safe-haven appeal.
Key reasons fed rate cut assumptions are gaining traction:
– Fed officials, including Governor Christopher Waller, signaled satisfaction with declining core inflation, hinting that the current rates may be sufficiently restrictive.
– The Fed’s November 2023 meeting minutes revealed a consensus to maintain current rates while stressing the need for flexibility.
– Incoming data such as weaker retail sales, declining housing starts, and stalling wage growth point to reduced economic momentum.
All these elements combine to strengthen bullish conviction in the gold market, enhancing investor inflows into exchange-traded funds (ETFs) backed by physical gold and increasing speculative net long positions.
Technical Analysis: Gold Eyes $2,075 with Firm Support at $2,030
Gold’s price surged above the $2,050 level, demonstrating strength after consolidating for several sessions in the $2,000 to $2,030 range. Technical analysts now identify strong resistance near $2,070 to $2,075, an area that capped gains earlier in May and June 2023.
Below current levels, $2,030 serves as key support, followed by the psychological $2,000 mark. If momentum holds, bulls could push for an extension toward the all-time highs near $2,085 seen in August 2020 and again in May 2023.
Key technical indicators
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