Gold Price Forecast: XAU/USD Hinges On Fed Meeting, Real Yields

Gold Price Weekly Fundamental Forecast: Bearish

  • Gold price action gained nearly 1.5% this past week after closing out on a positive note.
  • Precious metals like gold and silver face selling pressure more broadly alongside bonds.
  • XAU/USD could resume its slide if the upcoming Fed meeting pushes real yields higher.

Gold and silver prices perked up a bit last week to put an end to their recent string of losses. XAU/USD notched a gain of 1.44% while XAG/USD edged 2.74% higher on balance. Precious metals likely benefited from a slightly softer US Dollar as the recent surge in real yields paused. Gold price action generally holds a strong inverse relationship with real yields, as highlighted by the chart below.

That said, gold prices might come back under pressure in the week ahead. This is in consideration of the prevailing trend higher in real yields and event risk posed by the upcoming Federal Reserve interest rate decision. The scheduled Fed announcement expected to cross market wires on Wednesday, March 17, at 18:00 GMT will include updated economic projections, which stands to weigh materially on the direction of real yields and gold.

Gold Price Chart with 10-Year US Real Yield Overlaid: Daily Time Frame (June 2020 to March 2021)

Gold Price Chart Weekly Fundamental Forecast

Dot plot projections for the target Fed funds rate, in addition to the median inflation forecast provided by FOMC officials, could come under scrutiny in particular. Gold prices might react positively if there is a noteworthy upgrade to core PCE inflation, but this could be offset if the central bank brings forward its next projected rate hike, as the latter would likely boost real yields and the US Dollar. Fed Chair Jerome Powell will also spearhead a press conference shortly following the statement release.

Powell might toe the line laid out during his last speech earlier this month, which basically highlighted how the Fed is comfortable with Treasury yields rising as it broadly underpins a better outlook for the US economy. Echoing this message could ignite another selloff across bonds and precious metals.

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