Gold Price Forecast: Fed Cut Debate Intensifies While XAU Tests $4,263 Zone
Early European trading sees gold pull back from its recent gains and that's because a slight recovery in the US Dollar has taken the edge...
Quick overview
- Gold prices have pulled back due to a slight recovery in the US Dollar, trading around $4,210.
- Uncertainty regarding the Federal Reserve's next moves has left investors cautious, impacting gold's performance.
- Ongoing geopolitical tensions between Russia and Ukraine continue to support safe-haven demand for gold.
- Upcoming US macro data will be crucial in determining the future direction of both the US Dollar and gold prices.
Early European trading sees gold pull back from its recent gains and that’s because a slight recovery in the US Dollar has taken the edge off the metal’s winning streak over the last two days. As the mood towards risk improves and safe-haven demand takes a breather, gold is trading with a more reluctant tone for now, hovering around $4,210.
The reasoning behind this reversal of fortunes has a lot to do with renewed uncertainty surrounding the Fed’s next move. Everyone expected a 25-basis-point rate cut, but what was less than clear was the rest of the Fed’s intentions. Chair Jerome Powell said the labour market poses risks but stopped short of nudging the Fed’s easing needle any further. Two folks on the Fed who weren’t in favour of cutting rates at all is a rare disagreement, and it shows how unsure the Fed’s path is.
Fed Uncertainty Adds to Gold’s Woes
That mixed message from the Fed has left investors unsure what to expect next. The feeling had been that the Fed would be firmly committed to a gentle easing of policy, but that division among policymakers has now left the market in a bit of a fog, which has hit gold hard. Rate-sensitive assets are particularly sensitive to the direction of interest rates, and gold is no exception.
Having said that, the metal hasn’t fallen any further because the ongoing tensions between Russia and Ukraine have helped keep some safe-haven demand alive. The more recent disruptions to the Black Sea, where Ukraine targeted a tanker linked to the Russian energy network, have kept some investors seeking safe-haven assets like gold. Even though equities have picked up some strength, gold still has that underlying support.
Dark Clouds Ahead? US Macro Data Looms
From here, the focus shifts to what’s coming out of the US in terms of data. Initial Jobless Claims and the latest Trade Balance numbers will give us a better idea of the state of play in the economy – which is exactly what Chair Powell was talking about when he mentioned the labour market has risks. If labour numbers come in higher than expected, that could revive the US Dollar, while if they are a bit softer, it could reignite interest in defensive assets.
Some of the key things that traders are going to be keeping an eye on this week are:
- The state of play in the US labour market.
- Any changes to the number of rate cuts expected.
- How geopolitical tensions between Russia and Ukraine develop.
- How Treasury yields move
Gold Technical Outlook – Bulls Still in the Frame
Gold is trading near $4,213 – still firmly within the rising channel it’s been following since the early part of November. The repeated bounces it’s had around the $4,179 mark, where the channel’s lower boundary is, with long lower wicks indicating renewed buyer interest, is a good sign for the bulls.
Its 20-day Exponential Moving Average at $4,211 is starting to flatten out a bit but hasn’t broken up yet. A break above $4,263 – the short-term ceiling – would give gold a push towards $4,321, and then possibly even the top of the channel around $4,371.
On the other hand, if gold breaks below $4,179, sellers might take it down to $4,121 and $4,071. That RSI (Relative Strength Index) reading of 52 doesn’t give away much but does suggest balanced momentum, which goes to show gold is stuck in a bit of a draw. As long as the trendline holds, though, the overall bias remains constructive.
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