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June 22, 2024
PI Global Investments

Gold Prices Forecast: Capped by Strong Dollar Ahead of Fed Rate Cut Decisions

U.S. Dollar Gains Ahead of Key Reports

On Tuesday, gold prices fell as the U.S. dollar strengthened. Investors are positioning themselves ahead of a crucial U.S. inflation report and the Federal Reserve’s interest rate forecasts. The dollar’s rise of 0.1% makes gold more expensive for holders of other currencies, reflecting their inverse relationship.

Support Levels and Market Focus

Gold is nearing the support level at $2,277.34. If the upcoming Consumer Price Index (CPI) report shows higher-than-expected inflation, the likelihood of the Fed delaying rate cuts could push gold prices below this level. Furthermore, if the Fed’s dot plot indicates minimal or no rate cuts this year, gold could face additional downward pressure.

Federal Reserve Meeting and Projections

The Federal Reserve’s June meeting starts on Tuesday, with a policy decision expected on Wednesday. The Fed is widely expected to keep interest rates unchanged. However, economic projections are anticipated to show fewer rate cuts than previously expected due to persistent inflation. High interest rates reduce the attractiveness of non-yielding assets like gold, as investors prefer bonds and other yielding investments.

Treasury Yields and Investor Sentiment

U.S. Treasury yields fell on Tuesday as investors awaited the Fed’s policy decision and key economic data. The 10-year Treasury yield dropped four basis points to 4.4256%, while the 2-year Treasury yield fell to 4.8488%. Investors are closely watching the Fed’s guidance for any hints about future policy moves.

Market Forecast: Bearish Outlook

Considering the current strength of the U.S. dollar, the approaching CPI report, and the expected Fed stance on interest rates, the short-term outlook for gold remains bearish. If inflation data and Fed projections support a delay in rate cuts, gold prices are likely to break below the key support level of $2,277.34. Traders should stay vigilant and monitor these developments closely as they impact the gold market.

Technical Analysis

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