Gold Price Forecast: XAU/USD looks to Powell speech for a clear directional impetus

  • Gold price extends retreat from 10-day highs of $2,049 on the Fed day.
  • Risk aversion props up the US Dollar even as Treasury bond yields tumble.  
  • Fed Chair Powell’s words hold the key for Gold price mixed technical indicators.  

Gold price is extending its pullback from a ten-day high of $2,049 reached in the early American trading on Tuesday, as the US Dollar (USD) is attracting fresh demand amid broad risk-aversion on the all-important US Federal Reserve (Fed) interest rate decision day.

All eyes remain on Fed Chair Jerome Powell’s presser

Markets are sensing caution, as China’s economic concerns and escalating Middle East geopolitical tensions persist amid typical risk-averse trading heading into the Fed policy announcements. The tepid risk sentiment has revived the demand for the US Dollar as a safe-haven asset, fuelling a further retreat in Gold price.

The official manufacturing data from China showed contraction for the straight month in January, as the market angst continues over the lack of large stimulus moves by authorities to shore up the economy.

The downside in the Gold price, however, appears cushioned, thanks to the ongoing sell-off in the US Treasury bond yields, as investors remain wary ahead of Wednesday’s Treasury Department’s announcement of its bond-buying plan. Industry experts are expecting the US Treasury Department to increase the portion of longer-rated bonds as it did in recent debt-sale plans.

Also, repositioning in the bond market before the Fed interest rate decision and Chair Jerome Powell’s press conference could be attributed to the persistent weakness in the US Treasury bond yields.

The Fed is expected to leave the interest rates unchanged following the conclusion of its two-day policy meeting on Wednesday. The focus, however, will be on Powell's post-meeting press conference for any hints on the timing and pace of the interest rate cuts.

Data on Tuesday showed US JOLTS Job Openings unexpectedly increased in December, suggesting that the labor market still remains resilient, dissuading the Fed from delivering aggressive rate cuts.

Gold price technical analysis: Daily chart

As observed on the daily chart, Gold price seems at a critical juncture, looking to confirm an upside break from a month-long symmetrical triangle formation.

The triangle breakout could be validated should the Gold price yield a daily closing above the falling trendline resistance at $2,036.

The 14-day Relative Strength Index (RSI) indicator recaptured the midline, justifying the latest upswing in the bright metal.

However, traders remain cautious as a Bear Cross was confirmed on Tuesday after the 21-day Simple Moving Average (SMA) crossed the 50-day SMA from above on a sustained basis.

Amid mixed technical indicators, it now remains to be seen if the Gold price could sustain its recent upbeat momentum.

The immediate strong resistance is seen around the $2,040 level, above which the psychological $2,050 level will be back in play. Further up, Gold optimists will target the December 12 high of 2,062.

On the downside, an immediate cushion is seen around the $2,030 region, where the 21- and 50-day SMAs hang around. If the latter gives way, Gold sellers will test the rising trendline support of $2,017 on their way to the key $2,000 threshold.

A balanced or hawkish tone perceived in Powell’s speech could revive the hawks and trigger a fresh downfall in the non-interest-bearing Gold price.

Gold FAQs

Why do people invest in Gold?

Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.

Who buys the most Gold?

Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.

How is Gold correlated with other assets?

Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.

What does the price of Gold depend on?

The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended Content

Recommended Content

Editors’ Picks

EUR/USD fluctuates near 1.0850 as markets assess Fed commentary

EUR/USD fluctuates near 1.0850 as markets assess Fed commentary

EUR/USD trades in a tight range at around 1.0850 on Tuesday. In the absence of high-tier data releases, the cautious market mood helps the USD hold its ground and limits the pair's upside. Meanwhile, investors continue to scrutinize comments from central bank officials.


GBP/USD stays in positive territory above 1.2700, awaits fresh catalysts

GBP/USD stays in positive territory above 1.2700, awaits fresh catalysts

GBP/USD struggles to stretch higher above 1.2700 on Tuesday as the mixed action in Wall Street supports the USD. Investors await fresh catalysts, with several Fed officials and BoE Governor Bailey set to speak later in the session. 


Gold rebounds to $2,430 as US yields edge lower

Gold rebounds to $2,430 as US yields edge lower

Gold gained traction and climbed to $2,430 area in the American session, turning positive on the day. The pullback in the benchmark 10-year US Treasury bond yield helps XAU/USD stage a rebound following the sharp retreat seen from the all-time high set at the weekly opening at $2,450.

Gold News

Shiba Inu price flashes buy signal, 25% rally likely Premium

Shiba Inu price flashes buy signal, 25% rally likely

Shiba Inu price has flipped bullish to the tune of the crypto market and breached key hurdles, showing signs of a potential rally. Investors looking to accumulate SHIB have a good opportunity to do so before the meme coin shoots up.

Read more

Three fundamentals for the week: UK inflation, Fed minutes and Flash PMIs stand out Premium

Three fundamentals for the week: UK inflation, Fed minutes and Flash PMIs stand out

Sell in May and go away? That market adage seems outdated in the face of new highs for stocks and Gold. Optimism depends on the easing from central banks – and some clues are due this week.

Read more