The direction of gold prices depends heavily on the US dollar and Treasury yields. In turn, both are shaped by the Fed’s interest rate decisions and inflation. Where are consumer prices headed? How quickly will they decline? And how will the XAU/USD pair respond? Let’s examine these factors and develop a trading plan.
The article covers the following subjects:
Major Takeaways
- The Fed has weighed on gold.
- Goldman Sachs is reducing its forecasts.
- History offers clues for gold’s next move.
- Consider long trades if gold rebounds above 4,150.
Weekly Fundamental Forecast for Gold
Just as gold was beginning to recover on the back of easing tensions in the Middle East and declining oil prices, comments from Kevin Warsh dealt the precious metal a fresh setback. Investors expected Donald Trump’s preferred candidate to strike a dovish tone. Instead, his commitment as the new Fed chair to bringing inflation back to target was interpreted as a hawkish surprise. In response, the US dollar and 2-year Treasury yields climbed to their highest levels since the administration introduced sweeping tariffs.
Gold Price vs. Treasury Yields
Source: Bloomberg.
The decline in the XAU/USD pair served as a reality check for even the most bullish investors. Goldman Sachs lowered its end-2026 forecast for gold from $5,400 to $4,900 per ounce after revising its outlook for the federal funds rate. The bank had previously expected rate cuts in December 2026 and March 2027 but now sees them taking place in June and December 2027. If the Fed tightens monetary policy instead, as the derivatives market projects, gold may finish the year at $4,400.
The direction of Treasury yields and the US dollar, two of the main drivers of XAU/USD, will depend on the Fed’s next moves. Those decisions, in turn, will be guided by inflation. Will the rise in inflation triggered by the conflict in the Middle East prove temporary, as the US administration claims? Or will price pressures remain elevated for longer?
Performance of Stocks, Oil, and Gold
Source: Wall Street Journal.
To understand where gold may be headed next, it is worth looking back at 2022 and 2025. In both cases, markets expected inflation to accelerate. In 2022, those concerns were driven by the conflict in Ukraine and rising oil prices. In 2025, investors feared that Donald Trump’s tariffs would push prices higher. As a result, markets expected the Fed to raise interest rates. In 2022–2023, that expectation proved correct. However, inflation was also being fueled by the rapid economic recovery that followed the pandemic. In 2025, the situation unfolded differently, and the Fed chose to ease monetary policy instead.
In both cases, the pressure on gold proved short-lived. In 2022, gold prices fell for several months before rebounding and returning to an upward trajectory amid strong demand from central banks. In 2025, a brief period of consolidation was followed by another rally.
Gold bulls probably should not lose hope just yet. Markets reacted too strongly to Kevin Warsh’s hawkish comments after expecting him to take a more dovish stance. A further slowdown in inflation would reduce the likelihood of a Fed rate hike, weakening the US dollar and Treasury yields and creating a more favorable environment for gold.
Weekly Trading Plan for XAU/USD
Investors should start looking for buying opportunities in gold. Those who opened long trades at $4,070 per ounce can continue to hold them and consider adding new ones if the price settles above $4,150. At the same time, a decline toward $3,950 cannot be ruled out.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of XAUUSD in real time mode
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