On Tuesday, gold (XAU) rose towards 2,050, reaching its highest point in almost seven months. The increase happened primarily due to a significant drop in the U.S. dollar following dovish comments from Federal Reserve (Fed) officials.
Possible effects for traders
The Federal Reserve (Fed) Governor Christopher Waller noted that the existing monetary policy is sufficiently restrictive, hinting at a potential rate cut in the upcoming months. Chicago Fed President Austan Goolsbee also acknowledged progress in tackling inflation. The market now prices in a 44.7% chance that the Fed will begin to ease monetary policy in March 2024 and a 72.8% probability of a rate cut in May. It seems that the Fed sentiment is becoming increasingly dovish. However, XAUUSD may fall sharply if U.S. inflation reports show higher-than-expected numbers. In the short term, the gold market is excessively bullish, looking overextended. Thus, gold is highly sensitive to any negative news, which might have a more disproportional bearish effect on the XAUUSD price than positive data.
XAUUSD rose sharply during the Asian trading hours but pulled back during the early European session. Today, traders should focus on the U.S. GDP Growth Rate report at 1:30 p.m. UTC. Lower-than-expected figures will probably push XAUUSD towards 2,052. However, the bullish trend might pause if the numbers exceed expectations. ‘Spot gold may extend gains into a range of $2,059–$2,069 per ounce, driven by a powerful wave 3,’ said Reuters analyst Wang Tao.
