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Gold Price Forecast: Lower Rates, Lingering Risk Aversion to Boost XAU

Gold Price Forecast: Lower Rates, Lingering Risk Aversion to Boost XAU

2020-03-05 18:00:00
Peter Hanks, Analyst
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Gold Price Outlook:

  • Gold prices may climb following an emergency rate cut from the Federal Reserve
  • Apart from the initial shock, some investors suspect another 50bps cut at the March 18 Fed meeting
  • Thus, gold may enjoy the benefit of lower rates and lingering risk aversion simultaneously

Gold Price Forecast: Lower Rates, Lingering Risk Aversion to Boost XAU

Gold prices may climb higher in the weeks ahead following an emergency rate cut from the Federal Reserve.While the decision was a shock to most, some markets have already begun to price in another 50bps reduction to the Federal Funds Rate at the March 18 Fed meeting. The prospect of lower rates should fuel XAU/USD price gains in the weeks ahead as traders seek protection from inflation.

Trading the Gold-Silver Ratio: Strategies & Tips

That being said, the economic impact of coronavirus will likely be deflationary in nature – a theme I discussed in my silver price outlook. Still, once the storm has been weathered, the US economy will be left with substantially lower rates and, assuming the economy has not slipped into recession, an appetite to recoup losses. Thus, an eventual recovery could create prime conditions for rising inflation and drive gold demand.

Further still, it is difficult to ascertain just how much of the Fed’s easing has already been priced in to the precious metal. The US Dollar (via DXY) has declined for days and US Treasury yields have dropped to record lows while gold has remained beneath its recent swing high in February. Therefore, it looks as though gold will enjoy a series of fundamental tailwinds in the weeks ahead, particularly if risk aversion reaccelerates.

Gold Price Chart: Daily Time Frame (January 2019 – March 2020)

gold price chart

Standing in its path higher are two nearby levels of possible resistance. The first coincides with the metal’s February 2013 swing-high and the recent peak on February 24 around $1,690. It is followed by a Fibonacci level at $1,712. Together, the two levels will look to keep price contained as traders assess the fundamental cases for the commodity and bulls aim higher.

Gold Forecast
Gold Forecast
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Nevertheless, it appears gold and silver have been offered a substantial tailwind in the form of aggressive monetary policy easing. In the meantime, follow @PeterHanksFX on Twitter for updates and analysis on the metal.

--Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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