Golden Week Outlook: Interest rate hikes are expected to cool down, and bull momentum continues to i

Golden Week forecast: Expectations of the Federal Reserve to raise interest rates fade, and bullish momentum accumulates

Gold prices are expected to record solid gains this week, as market expectations for further Fed interest rates weaken, thus enhancing the attractiveness of this interest-free metal. As of the latest trading session, XAU/USD closed at around US$2,450, up more than 1.5% this week, supported by a weakening US dollar and a decline in government bond yields.

Why are Fed interest rate hikes expected to fade?

Market participants have cut their bets on further Fed tightening policy after a series of weak U.S. economic data, including a cooling jobs report and slowing inflation data. According to the CME FedWatch tool, the probability of a September rate hike has dropped to 20% from 35% in the previous month. This change in expectations has put pressure on the U.S. dollar, making gold cheaper for international buyers, while also reducing the opportunity cost of holding gold.

Technical Outlook: Focus on Key Levels

From a technical perspective, gold has exceeded the 50-day moving average and is currently testing the resistance zone between US$2,450 and US$2,470. If it continues to stand firm above the region, it may open up space for gold prices to rise near the all-time high of $2,480 set in May. On the downside, direct support is at $2,420, followed by $2,390 at the 20-day moving average.

The momentum indicator is turning bullish and the Relative Strength Index (RSI) has rebounded above 60, indicating that buyers are taking control of the situation. However, traders remain cautious about next week's U.S. CPI report. If inflation data unexpectedly rises, it may reignite concerns about interest rate hikes.

What does this mean for investors?

For investors, the current environment is mixed. On the one hand, weakening expectations of interest rate hikes provide a tailwind for gold prices; on the other hand, any hawkish surprise or inflation rebound at the Fed could quickly reverse the trend. Gold remains a commonly used hedging tool against geopolitical risks and currency devaluations, but its short-term trend depends on central bank policies and macroeconomic data.

Market background and broader implications

The recent rise in gold is part of a broader trend of strong central bank purchases and strong retail demand, particularly from Asia. According to the World Gold Council, central banks purchased a record 1,136 tons of gold in 2024, highlighting the lasting appeal of gold as a reserve asset. In addition, ongoing geopolitical tensions, including trade disputes and conflicts in Eastern Europe and the Middle East, also continue to support safe-haven capital inflows.

However, investors should note that gold prices are highly sensitive to changes in real interest rates. If the Fed maintains a restrictive stance longer than expected, gold could face resistance. The upcoming FOMC meeting and the U.S. CPI report will be crucial in shaping the short-term outlook.

Conclusion

Overall, gold's bullish momentum is supported by fading expectations of a Federal Reserve interest rate hike, a weakening US dollar and strong physical demand. Although technical indicators point to further upside, markets remain vulnerable to sudden shifts in monetary policy expectations. Traders should watch the key resistance level of $2,470 and upcoming U.S. inflation data for direction signals.

Frequently Asked Questions

Q1: What factors are driving gold prices higher this week?
Gold prices rose due to weakening expectations for further Fed interest rate hikes, weakening the dollar and reducing the opportunity cost of holding interest-free assets such as gold.

Q2: What are the key resistance and support levels for gold?
Direct resistance is between $2,450 and $2,470 and is expected to rise further to near all-time highs of $2,480. Support is at $2,420, followed by $2,390.

Q3: How will the upcoming US CPI report affect gold?
The CPI report is crucial: if inflation readings are higher than expected, it may reignite expectations of interest rate hikes, thus putting pressure on gold; if the data is cold, it may support further gold prices.