Gold Price Forecast: Modest Gains Amid Weak Dollar

Gold Price Forecast: Modest Gains Amid Weak Dollar, Weekly Decline Looms

Gold prices saw a slight increase of 0.4% on Friday, reaching $2,338.67 per ounce. This modest gain was driven by a weaker US dollar, making gold more affordable for foreign buyers. However, this uptick is overshadowed by a nearly 3% decline over the week, marking the worst weekly performance in over five months. Here’s a comprehensive gold price forecast, factoring in various market influences.

### The Federal Reserve’s Impact on Gold Prices

The primary factor behind gold’s decline is the changing expectations regarding interest rate cuts by the US Federal Reserve. Recent minutes from the Fed’s meeting revealed a cautious stance on reaching the 2% inflation target, indicating that rate cuts might not come as soon as investors had hoped. Higher interest rates make gold, which does not yield interest, less attractive. As a result, traders now see only a 63% chance of a rate cut by November, down from earlier predictions.

### Chinese Demand and Geopolitical Tensions

Despite the weekly decline, gold has risen 13% since the start of the year. This increase is mainly due to strong demand from China and ongoing geopolitical tensions. However, there are concerns that China’s efforts to stimulate its economy might reduce retail investor demand for gold in the second half of the year. If Chinese demand decreases, the focus will shift to Western investors, who are influenced by Federal Reserve interest rates decisions.

### Gold Technical Analysis: What to Watch For

From a technical perspective, gold’s recent trend suggests a continuation of the downtrend, though the correction is expected to be relatively shallow. Currently, gold is trading in a descending channel, with significant resistance around $2,340.10. If gold can break above this level, it might rally up to $2,380.00.

On the downside, strong support is seen at $2,305.00. Falling below this level could lead to a further drop to around $2,272.06, a key psychological level that coincides with the 50-day Exponential Moving Average (EMA), which acts as dynamic support.

The Stochastic oscillator, a momentum indicator, suggests that gold is oversold, meaning the selling pressure might be easing. This could lead to a short-term bounce. For a more sustained recovery, a confirmed bullish crossover on the Stochastic is needed. This gold technical analysis is crucial for traders looking to understand market movements.

### Summary

In conclusion, while gold prices saw a small boost from a weaker US dollar, the overall outlook remains cautious due to the Federal Reserve interest rates policies. Strong demand from China and geopolitical tensions have supported gold so far this year, but potential changes in Chinese demand and Federal Reserve interest rates policies could influence future prices. Technical analysis points to a possible short-term recovery, but key levels must be monitored for signs of a more sustained uptrend.

Rana Das, CEO and Founder, Forex Wave Expert.