Gold price forecast: XAU signal ahead of the Fed decision

Gold price has held steady above the crucial resistance-turn-support zone of $2,600 per ounce after momentarily dropping below it in mid-November. While the bulls remain in control, the bullion appears set for range-bound trading in the near term. 

In addition to the festivities mood that appears to lower trading volumes, gold price is under pressure from a stronger US dollar and rising Treasury yields. Even so, fresh tensions between Israel and Syria are supporting this conventional safe haven. This is in addition to China’s recent gold purchases after a 6-month hiatus. At the time of writing, the precious metal was trading at $2,647 an ounce; down by over 5% from the all-time high it hit in late October.

Rising Treasury yields weighs on the non-yielding bullion

The benchmark 10-year US government bond yields have been in the green for a week now; weighing on gold price while bolstering the US dollar. At 4.41%, the Treasury yields are trading close to the 6 month high it hit in mid-November at 2.50%. Higher Treasury yields tend to increase the opportunity cost of holding the non-yielding bullion. Furthermore, higher yields tend to boost the US dollar. 

The surge in Treasury yields has been fueled by investors’ expectations of a 25 basis points rate cut during the Fed’s last policy meeting this year. This will be the third consecutive interest rate cut after the central bank announced cuts of 50 and 25 basis points in September and November respectively. 

Beyond December’s rate cut, investors expect to US central bank to embrace a rather hawkish tone moving forward. Indeed, it is these expectations that have investors hesitant to make major moves ahead of Wednesday’s FOMC statement. Earlier in December, Jerome Powell indicated that the stability of the US economy allows the Fed to be more “cautious” in its interest rate cuts. 

Besides, analysts are concerned that Trump’s policies will increase inflation thus pushing the central bank to pause on its easing cycle. Ordinarily, gold price thrives in an environment of lower interest rates. 

Geopolitical tensions, PBoC’s purchase limits losses

Despite the pressure exerted on gold price, the purchases made by China’s central bank have sustained the bullion above $2,600. The People’s Bank of China increased their gold reserves by 160,000 fine troy ounces in November after pusing on the purchases for six months. Prior to the hiatus, PBoC had been accumulating their gold holdings for 18 months in a row; a move that further fueled the precious metal’s bull run. 

Interestingly, the resuming of China’s purchases coincided with the asset’s rallying to a fresh record high. This indicates the central bank’s commitment in strengthening its reserves and guarding against Yuan’s depreciation. Indeed, the growth of gold reserved by various central banks across the world has been one of the factors boosting gold prices in 2024. 

Besides, persistent conflicts in the Middle East and Eastern Europe have sustained safe haven demand in recent months. From Russia’s updated nuclear doctrine to the recent toppling of Syria’s President Bashar Assad, gold price continues to find support in its status as a conventional safe haven. 

Even so, its safe-haven demand has been curbed by the fact that the US dollar is also a preferred store of value in times of economic and geopolitical uncertainties. In turn, a stronger greenback makes the precious metal more expensive for buyers with foreign currencies. 

Gold price forecast

The daily chart shows that the price of gold topped at $2,790 in November and has dropped to $2,650 after Donald Trump’s election. It has now consolidated at the 50-day and 25-day Exponential Moving Averages (EMA).

Gold has also formed a double-top pattern at $2,725. A double-top pattern is one of the most bearish signs in the market. Therefore, there is a likelihood that it will have a bearish breakout after the Fed decision. If this happens, gold may drop to the next key support level at $2,538, its lowest level on November 14.

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