Gold Weekly Forecast: Gains Depend on US Interest-Rate Outlook

Gold (XAU/USD) experienced modest gains this week, bolstered by safe-haven demand and softer US inflation data. With no significant macroeconomic data releases expected in the coming days, investors will closely monitor technical developments in XAU/USD and comments from Federal Reserve (Fed) officials for direction.

Gold Buyers Hesitate to Bet on a Decisive Rally

At the start of the week, Gold prices corrected higher following a sharp decline due to strong US labor market data. The Bureau of Labor Statistics reported that the US Consumer Price Index (CPI) for May edged lower to 3.3% annually from 3.4% in April, with the core CPI rising 3.4% annually, slightly below the expected 3.5%. These softer inflation readings caused the US Dollar (USD) to weaken, allowing Gold to climb above $2,340.

As anticipated, the Fed then announced it would keep the policy rate unchanged at 5.25%-5.5%. The revised Summary of Economic Projections indicated fewer rate cuts in 2024 than previously projected, causing the USD to regain strength and Gold to retreat from its daily highs. Fed Chairman Jerome Powell noted the encouraging inflation data but emphasized the need for consistent improvements before considering rate cuts.

Gold lost traction on Thursday despite disappointing US Producer Price Index (PPI) data and a rise in weekly jobless claims, which initially capped the USD’s rebound. However, Gold regained some ground by Friday due to a risk-averse market atmosphere and capital outflows from the Euro (EUR), driven by political concerns following the European Parliament election.

Focus Shifts to Fed Officials’ Comments

Next week, China’s Industrial Production and Retail Sales data could impact Gold’s valuation. Better-than-expected data might boost gold prices by improving the outlook for demand. On Tuesday, the US Census Bureau will release May Retail Sales data, and the Fed will publish Industrial Production data for May. A disappointing Retail Sales reading could hurt the USD and benefit Gold, while an upbeat print could have the opposite effect.

Friday, we will see the release of preliminary Manufacturing, Services, and Composite PMI data for June from S&P Global. If the Composite PMI drops below 50, indicating contraction, the USD could face selling pressure, supporting Gold prices.

With the Fed’s blackout period ending, officials will begin commenting on the policy outlook. The CME FedWatch Tool indicates a nearly 70% probability of at least a 25 basis points rate cut in September. If Fed officials push back against this expectation, US Treasury bond yields could rise, making it challenging for Gold to maintain its gains. Conversely, if they support the idea of rate cuts in September and December, Gold is likely to attract more buyers.

Gold’s performance next week will heavily depend on the US interest-rate outlook and economic data. As the market awaits clarity from the Fed, Gold investors will be keenly watching for any signals that could influence future monetary policy decisions.

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