Gold Weekly Forecast: Fedspeak to test sellers’ commitment in calm week ahead

• Gold struggled to gather recovery momentum following the bearish action seen in the first half of the week.
• The near-term technical outlook points to a bearish tilt.
• In the absence of high-impact data releases, Fedspeak could drive XAU/USD’s action next week.

Gold (XAU/USD) price fell more than 2% for the second consecutive week, erased a small portion of its losses but finally came under renewed bearish pressure. The near-term technical outlook points to a loss of bullish momentum as the market focus shifts to Fedspeak.

Gold ended the choppy week in negative territory

Gold started the new week in a calm manner and closed virtually unchanged on Monday. However, XAU/USD turned south and dropped to its weakest level in over three weeks below $2,290 on Tuesday, losing more than 2% on a daily basis. The decline came after data from the US showed that the Employment Cost Index rose 1.2% in the first quarter following the 0.9% increase recorded in the fourth quarter of 2023. This reading surpassed the market expectation of 1% and helped US Treasury bond yields push higher, forcing Gold to push lower. Meanwhile, the USD continued to gather strength after The Wall Street Journal reporter Nick Timiraos reported that the Federal Reserve (Fed) will emphasize that they are prepared to hold rates steady for longer than previously anticipated, due to strong inflation readings seen in the first quarter of the year.

On Wednesday, the Fed announced that it left the policy rate unchanged at 5.25%-5.5% as forecast. In its policy statement, the Fed also said that they will dial back the pace of balance sheet reduction by lowering the Treasury redemption cap to $25 billion per month from $60 billion starting June 1. 

When asked about the possibility of policy tightening in the face of persistent inflation in the post-meeting press conference, Fed Chairman Jerome Powell said that it was unlikely that the next interest rate move would be a hike. Powell refrained from providing any clues regarding the timing of the policy pivot but acknowledged that it was likely that it will take longer than previously anticipated to gain the greater confidence needed in inflation moving toward the 2% target to lower the policy rate. The benchmark 10-year US Treasury bond yield lost more than 1% late Wednesday and the USD weakened against its rivals as the Fed event turned out to be not as hawkish as feared. As a result, XAU/USD recovered back above $2,300. Meanwhile, the Bank of Japan (BoJ) seemingly intervened in the foreign exchange market for the second time this week in the late American session on Wednesday, putting additional weight on the USD’s shoulders.

Following the Fed-inspired decline, the USD managed to stage a rebound on Thursday, capping XAU/USD’s upside, after the US Bureau of Labor Statistics (BLS) reported that Unit Labor Costs rose 4.7% in the first quarter. With risk flows starting to dominate the action in financial markets later in the American session, the USD lost its strength and allowed XAU/USD to end the day slightly above $2,300.

The BLS announced on Friday that Nonfarm Payrolls rose 175,000 in April. This reading fell short of the market expectation for an increase of 243,000. Other details of the report showed that the Unemployment Rate edged higher to 3.9%, while the Labor Force Participation Rate remained unchanged at 62.7%. Additionally, Average Hourly Earnings rose 0.2% on a monthly basis, compared to analysts’ estimate of 0.3%. Despite the soft labor market data, Gold failed to attract investors as markets remained risk-positive heading into the weekend.

Gold investors’ focus shifts to Fedspeak

The US economic docket will not feature any high-tier data releases that could impact Gold’s valuation in a significant way next week. On Thursday, Trade Balance data from China will be watched closely by market participants. In case China’s trade surplus widens more than expected in April, the initial market reaction could help XAU/USD push higher, with investors assessing that as a positive development for Gold’s demand outlook.

Market participants will also keep a close eye on comments from Fed officials next week. According to the CME FedWatch Tool, the probability of a Fed policy pivot in September stays slightly above 50% after the Fed event. In case Fed policymakers leave the door open to a rate cut in September, the market positioning suggests that the USD could come under selling pressure. On the other hand, the USD is likely to hold its ground and make it difficult for XAU/USD to gain traction if Fed officials voice favoritism of a rate reduction closer to the end of the year. Nevertheless, policymakers will have several more inflation and employment data to assess until September and they could avoid offering any clear signals regarding the timing of the policy pivot.

Gold technical outlook

The Relative Strength Index (RSI) indicator on the daily chart declined below 50, pointing to a bearish tilt in the short term. Additionally, the last five daily XAU/USD candles closed below the 20-day Simple Moving Average (SMA).

The Fibonacci 23.6% retracement of the February-April uptrend forms a pivot level at $2,300. In case Gold continues to use that level as resistance, technical sellers could remain interested. In this scenario, $2,280 (static level) could be seen as interim support before $2,245 (Fibonacci 38.2% retracement) and $2,235 (50-day SMA).

On the upside, resistance levels could be seen at $2,340 (20-day SMA), $2,360 (static level) and $2,400 (end-point of the uptrend) once XAU/USD stabilizes above $2,300.