Gold Weekly Forecast: Fed rate call and dot plot key for next directional action
- Gold feels the weight of rising US Treasury bond yields.
- The Fed’s rate decision and revised SEP could help the precious metal find direction.
- The technical outlook highlights buyers’ hesitancy in the near term.
Gold (XAU/USD) struggled to shake off the bearish pressure as US Treasury bond yields climbed higher this week. Investors gear up for the Federal Reserve’s (Fed) critical policy meeting, which could trigger the next directional action in the precious metal.
Gold turns south as US T-bond yields climb higher
Gold started the week under bearish pressure and closed in negative territory on Monday as investors adopted a cautious stance amid a further escalation of the conflict in the Middle East. Over the weekend, the US military attacked three Iran-linked oil tankers. In response, Iran targeted three US-affiliated vessels, in addition to three oil tankers attempting to pass through the Strait of Hormuz.
Growing inflation fears amid rising crude Oil prices, combined with the previous week’s upbeat US employment data, fed into expectations for a Fed interest rate hike in September and caused the precious metal to continue to push lower.
After losing more than 1% on Tuesday, Gold gathered recovery momentum on Wednesday and erased a large portion of its initial weekly losses. However, rising US Treasury bond yields capped XAU/USD’s upside in the American session. After the US Treasury Department announced that it will buy up to $6 billion in 10- to 20-year Treasury bonds in its buyback operation, the 10-year US T-bond yield reached its highest level since November 2023.
US economic data showed on Thursday that the Producer Price Index (PPI) rose by 5.4% on a yearly basis in August. This print followed the 4.8% increase recorded in July and came in above the market expectation of 5.3%. Meanwhile, crude Oil prices surged higher and the barrel of West Texas Intermediate (WTI) rose above $100 for the first time since late May. In turn, the CME FedWatch Tool’s probability of a 25 basis points (bps) increase in the interest rate in September advanced to 70%, while the 10-year US T-bond yield extended its rally toward 5%, further boosting the USD and dragging XAU/USD back below $4,400.
Analysts at Deutsche Bank highlight that for the US, it was “much the same story, amidst mounting speculation that the Fed would hike rates next week.” In their words, “Treasury yields surged higher, with the 2yr yield (+15.5bps) rising to 4.59%, its highest since July 2024, whilst the 10yr yield (+12.2bps) rose to 4.96%, the highest since October 2023.” They note that this move came as “the latest US PPI inflation print for August… showed headline PPI up +0.4% on the month, with the July print revised up a tenth to +0.1%.” Deutsche Bank stress that “significantly, the components that feed into PCE came in on the stronger side, which cemented the view that the Fed would end up hiking next week.”
With Oil prices correcting lower on Friday, Gold managed to gain traction heading into the weekend. In the meantime, the US Bureau of Labor Statistics reported that annual inflation in the US, as measured by the change in the Consumer Price Index (CPI), held steady at 3.4% in August, as expected. In this period, the core CPI rose by 2.4% on a yearly basis, down from 2.5% in July. These figures failed to trigger a significant market reaction and allowed Gold to cling to its recovery gains at around $4,400.
Gold volatility set to rise on Fed decision
The Fed will conduct its two-day policy meeting and announce its decisions on Wednesday. Alongside the policy statement, the US central bank will also publish the revised Summary of Economic Projections (SEP), which will feature policymakers’ interest rate forecasts, known as the dot-plot.
In June, the SEP showed that policymakers’ projections implied only a 25 bps increase in 2026, followed by a 25 bps rate cut in 2027 and another 25 bps cut in 2028.
At this point, a decision to leave the interest rate unchanged could be seen as a significant dovish surprise and trigger a heavy USD selloff with the knee-jerk reaction, opening the door for a Gold rally. Even if the dot-plot still points to a 25 bps hike by the end of the year, unless there is a hawkish tilt in 2027 projections, Gold could preserve its bullish momentum. However, a policy hold might not be enough to fuel a decisive Gold uptrend if the publication shows that officials foresee additional policy tightening steps next year.
In case the Fed opts for the 25 bps rate hike and the dot-plot highlights one more increase this year and at least another hike next year, the USD could gather strength in the near term and hurt Gold.
In summary, there are too many moving parts heading into the critical Fed meeting. It might be risky to take large positions based on the initial market reaction. In addition to the dot-plot and the rate call, comments from Fed Chair Kevin Warsh could also ramp up market volatility. Although Warsh made it clear that he is against traditional forward guidance, investors will assess his comments to see whether he is under political pressure to push back against policy tightening ahead of the midterm election.
According to TD Securities, the backdrop for bullion remains constructive, with the “precious metal landscape still broadly supported by the renewed Dollar-debasement theme, elevated central bank buying and renewed ETF accumulation.” In this context, the bank argues that “a hawkish Fed may only postpone the timing of the next leg higher rather than catalyze material downside,” suggesting policy risks are more likely to affect the pace than the direction of the next move in Gold.
Gold technical analysis: Buyers hesitate but no signs of a bearish reversal yet
The near-term technical outlook is yet to highlight a buildup in bearish pressure as the Relative Strength Index (RSI) indicator on the daily chart holds steady at around 50 and Gold sits above the 100-day Simple Moving Average (SMA) despite closing below that level on Thursday.
On the upside, $4,510-$4,535 (Fibonacci 38.2% retracement of the March-August downtrend, 200-day SMA) remains intact as a key resistance region. In case Gold stabilizes above this area and confirms it as support, $4,675-$4,700 (Fibonacci 50% retracement, round level) could be seen as the next bullish target before $4,850 (Fibonacci 61.8% retracement).
Looking south, the first important support level could be spotted at $4,330-$4,295 (100-day SMA, static level, Fibonacci 23.6% retracement) ahead of $4,270 (50-day SMA) and $4,200 (static level).
Gold FAQs
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.
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.
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.
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.
Author
Eren Sengezer
FXStreet
As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.
