Gold Weekly Forecast: Geopolitics, Fed policy decision to drive prices
- Gold climbed above $3,400, supported by broad USD weakness and escalating geopolitical tensions.
- The Federal Reserve will announce the interest rate decision and publish the dot plot on Wednesday.
- The near-term technical outlook points to a buildup of bullish momentum.
Gold (XAU/USD) turned north and climbed to its highest level since early May above $3,400. The Federal Reserve’s (Fed) monetary policy announcements and developments surrounding the Israel-Iran conflict could continue to impact XAU/USD’s performance in the near term.
Gold gathers bullish momentum
Gold struggled to find direction at the beginning of the week and closed virtually unchanged on Monday and Tuesday. The relatively upbeat market mood, driven by growing optimism about the US and China resolving the trade dispute, made it difficult for XAU/USD to gain traction. Representatives from China and the US met in London for the next round of trade talks on Monday. The Wall Street Journal reported that US President Donald Trump gave the green light to his negotiators, led by Treasury Secretary Scott Bessent, to lift export controls on a variety of Chinese products. Following the second day of talks on Tuesday, the US and China decided to ease export curbs, including those on rare earths, and agreed on a framework to keep the tariff truce alive.
On Wednesday, the US Dollar (USD) came under renewed selling pressure, allowing XAU/USD to turn north. The data published by the US Bureau of Labor Statistics showed that annual inflation, as measured by the change in the Consumer Price Index (CPI), edged higher to 2.4% in May from 2.3% in April. This reading came in below the market expectation of 2.5%. Additionally, the CPI and the core CPI both rose 0.1% on a monthly basis, at a softer pace than anticipated.
After rising nearly 1% on Wednesday, Gold preserved its bullish momentum on Thursday. Weaker-than-anticipated producer inflation data, combined with a disappointing weekly Initial Jobless Claims reading, further weighed on the USD.
Gold extended its weekly uptrend early Friday after Israel's Prime Minister Benjamin Netanyahu said that they have launched "Operation Rising Lion," targeting Iran's nuclear infrastructure, ballistic missile factories and its military capabilities. Netanyahu also noted that the operation will continue for as many days as it takes. In response, Iran's Armed Forces General staff said that Israel and the US will "pay a very heavy price." Gold capitalized on safe-haven flows and broke above $3,400.
Gold investors could react to revisions in Fed dot plot, geopolitics
The economic calendar will not offer any high-tier data releases that could drive Gold’s valuation in the first half of the week. Hence, investors will continue to pay close attention to geopolitical developments. In case the tensions in the Middle East escalate further, Gold could continue to find demand as a safe-haven asset.
On Wednesday, the Fed will announce its interest rate decision and publish the revised Summary of Economic Projections (SEP), the so-called dot plot.
The Fed is widely expected to keep the policy rate unchanged at the 4.25%-4.5% range. In case the dot plot shows that policymakers are still projecting two 25-basis-point (bps) rate cuts in 2025, the USD could come under selling pressure with the immediate reaction and open the door for a leg higher in XAU/USD. On the other hand, a hawkish revision to the SEP, with policymakers forecasting only one rate cut this year, could fuel a USD rally and cause XAU/USD to turn south.
Market participants could also react to comments from Fed Chairman Jerome Powell. If Powell acknowledges softer inflation data and adopts an optimistic tone about the outlook, the USD could have a difficult time finding demand. Conversely, the USD could hold its ground in case Powell reiterates that the central bank needs to remain patient with regard to policy easing, citing relatively healthy conditions in the labor market.
On Thursday, financial markets in the US will remain closed in observance of the Juneteenth holiday.
Gold technical analysis
The Relative Strength Index (RSI) indicator on the daily chart rose slightly above 60 and Gold broke out of the symmetric triangle to the upside, pointing to a buildup of bullish momentum.
Looking north, the immediate resistance level could be seen at $3,450, where the mid-point of the six-month-old ascending regression channel is located. Once Gold stabilizes above this level, $3,500 (all-time high set on April 22) could be seen as the next hurdle before $3,580 (upper limit of the ascending channel).
On the downside, support levels could be spotted at $3,330-$3,320 (20-day Simple Moving Average (SMA), lower limit of the ascending channel), $3,285 (50-day SMA, Fibonacci 23.6% retracement level) and $3,200 (static level, round 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.
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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.
