Gold Price Forecast: XAU/USD sticks to modest gains near $1,925, hawkish Fed to cap the upside

• Gold gains some positive traction on Friday and snaps a three-day losing streak to the weekly low.
• The Fed’s hawkish outlook continues to underpin the USD and should cap any meaningful upside.
• Traders now look forward to the flash global PMIs and the broader risk sentiment for some impetus.

Gold price builds on the previous day’s bounce from the $1,914-$1,913 area, or the weekly low and gains some positive traction during the Asian session on Friday. The XAU/USD currently trades around the $1,925 region, up just over 0.20% for the day, and for now, seems to have snapped a three-day losing streak.

The intraday uptick in the Gold price, meanwhile, lacks any obvious fundamental catalyst and runs the risk of fizzling out rather quickly in the wake of the Federal Reserve’s (Fed) readiness to hike interest rates until inflation returns to its 2% target. In fact, the Fed warned that warned that still-sticky inflation in the United States (US) was likely to attract at least one more 25 basis points (bps) lift-off by the year-end.

Moreover, the so-called ‘dot-plot’ indicated that policymakers see the benchmark rate at 5.1% in 2024, suggesting just two rate cuts next year as compared to four projected previously. Adding to this, the US Labor Department reported on Thursday that the number of Americans filing new claims for unemployment-related benefits dropped to an eight-month low last week, pointing to persistent labour market tightness.

This should allow the Fed to keep rates higher for longer and lead to an extended selloff in the US fixed-income market, pushing the yield on the rate-sensitive two-year government bond to its highest level since July 2006. Moreover, the benchmark 10-year Treasury yield rose to a 16-year peak, which continues to underpin the Greenback and keep a lid on any meaningful appreciating move for the non-yielding Gold price.

Hence, it will be prudent to wait for strong follow-through buying before placing fresh bullish bets around the XAU/USD. Market participants now look forward to the release of the flash PMI prints, which will be looked upon for fresh insight into the health of the global economy. This, in turn, will influence the broader market risk sentiment, which should drive demand for traditional safe-haven assets and the Gold price.

Technical levels to watch

XAU/USD