Gold Price Forecast: Optimism Surges as Investors Anticipate Dovish Fed Stance

Introduction

In recent weeks, gold prices have been on a rollercoaster ride, reaching multiple-week highs before losing some momentum. As investors closely follow global economic indicators and central bank policy decisions, the price of gold, represented by the XAU/USD pair, remains a focal point in financial markets. In this comprehensive gold price forecast, we delve into the recent market movements, analyze key economic data, and explore the upcoming events that are likely to influence the precious metal’s trajectory.

Last Week’s Market Overview

China’s GDP Figures and Treasury Bond Yields

Early last week, China reported its real Gross Domestic Product (GDP) for the second quarter, which grew at an annual pace of 6.3%. Although this figure was in line with the previous quarter’s growth, it fell short of market expectations, causing the XAU/USD to briefly dip below $1,950. However, the decline was short-lived as the yield on the 10-year US Treasury bond moved lower during the American session, allowing gold to regain its footing.

Surprising Retail Sales Data and Pound Sterling’s Impact

Contrary to market forecasts, retail sales in the US increased by 0.2% on a monthly basis in June, significantly outperforming expectations. This robust consumer activity supported the strength of the US Dollar (USD) against its competitors, but gold found support and climbed higher as technical buyers reacted to the move past $1,960. Additionally, the XAU/GBP pair witnessed significant capital inflows amid reduced hawkish Bank of England (BoE) wagers.

The decline in Unemployment Claims and USD Strength

As the US reported a decline in initial applications for unemployment benefits, the yield on US 10-year T-bonds recovered, leading to a slight retracement in the XAU/USD price. However, the USD strengthened on Friday due to a rise in USD/JPY, influenced by indications that the Bank of Japan (BoJ) would retain its current monetary policy settings.

Next Week’s Anticipated Events

S&P Global’s PMI Surveys and Fed’s Policy Statements

Traders are eyeing the preliminary results of S&P Global’s July PMI surveys, especially if the Composite PMI falls below 50, as it might put pressure on US T-bond yields and the USD. However, investors may hold back from opening sizable positions until after the Federal Reserve’s policy statements on Wednesday.

Fed’s Policy Rate Decision and GDP Growth

The Federal Reserve’s meeting in July is expected to result in a 25 basis points (bps) increase in the policy rate, bringing it to a range of 5.25–5.5%. Investors will closely observe Chairman Jerome Powell’s comments for hints on future rate hikes. If the Fed acknowledges lower-than-expected inflation or hints at a dovish stance, US yields might shift downward, benefiting gold. Conversely, a persistent refusal to adjust market expectations could lead to USD outperformance and bearish pressure on the XAU/USD pair.

The US Bureau of Economic Analysis will also present the preliminary estimate of GDP growth for the second quarter. A weaker-than-expected Q2 GDP might reignite recession fears and weigh on the USD, while a positive GDP figure could bolster the USD and drive XAU/USD lower.

Personal Consumption Expenditures (PCE) Price Index

Market investors will closely monitor the PCE Price Index, the Fed’s preferred inflation indicator, for insights into gold price impact. Positive data may support the USD, while weaker-than-expected results could drive gold higher.

Gold Technical Outlook

The technical analysis suggests that the $1,950–1,960 range, which includes the Fibonacci 23.6% retracement and the 50-day Simple Moving Average (SMA), serves as a critical level for Gold. Staying above this range’s upper boundary could provide temporary resistance at $1,980 before a potential rally toward $2,000.

On the downside, a daily close below $1,950 may attract sellers, leading to a test of support at the 20-day SMA around $1,935, followed by $1,910 (static level) and $1,900 (psychological level and Fibonacci 38.2% retracement). The Relative Strength Index (RSI) indicates that XAU/USD lost some bullish momentum but hasn’t signaled a reversal yet.

Conclusion

As investors brace themselves for crucial economic data releases and the Federal Reserve’s policy statements, the price of gold remains subject to shifts in global sentiment. Market participants eagerly await signs of a dovish Fed stance, as well as any surprises in key economic indicators, which could impact the precious metal’s trajectory. With the technical outlook indicating crucial support and resistance levels, traders are closely monitoring market developments to make informed decisions in the weeks ahead.

FAQs

1. What Caused the Dip in XAU/USD Last Week?

China’s GDP growth, falling short of market projections, and rising Treasury bond yields triggered a brief dip in XAU/USD below $1,950.

2. How Did Robust US Retail Sales Impact Gold Prices?

Surprising retail sales data in the US led to USD strength against its peers, but gold found support and climbed higher as technical buyers entered the market.

3. What Events Are Investors Watching Closely Next Week?

Investors are closely monitoring S&P Global’s PMI surveys, the Federal Reserve’s policy rate decision, GDP growth data, and the PCE Price Index.

4. How Might the Fed’s Policy Statements Impact Gold?

If the Fed adopts a dovish stance or acknowledges lower-than-expected inflation, US yields might decline, benefiting gold prices. Conversely, a persistent refusal to adjust market expectations could lead to USD outperformance and bearish pressure on gold.