Gold Price Forecast: Will Gold Rise or Fall in the Short Term as Fed July Minutes Approach?

TradingKey - As of the Asian session on August 19, gold prices (XAUUSD) maintained a weak rebound intraday, rising about 0.2% on the day to trade near $4,340. Earlier on Tuesday, gold prices fell nearly 2%, largely suppressed by a sell-off in global bond markets and a sharp rise in U.S. Treasury yields. Today, as U.S. Treasury yields pulled back from their highs, gold regained buying support, though the broader market remains cautious ahead of the release of the Fed's July meeting minutes.

US Treasury Yields Pull Back From Highs to Support Gold; Fed Minutes Become Key

From a fundamental perspective, the core factors driving gold prices recently are U.S. interest rates and Treasury yields.

Global bond markets experienced a pronounced sell-off this week, with long-term U.S. Treasuries weighed down by fiscal and inflation concerns. The 30-year U.S. Treasury yield rose to 5.337% at one point on Tuesday, approaching its highest level in nearly 20 years. Because gold pays no interest, the sharp rise in Treasury yields increased the opportunity cost of holding the metal, dragging gold prices down nearly 2% on Tuesday.

However, the bond sell-off eased today. The 10-year U.S. Treasury yield pulled back to around 4.70%, the 30-year yield slipped to near 5.27%, and the U.S. Dollar Index also dropped to around 99.5. The simultaneous weakness in U.S. Treasury yields and the U.S. dollar prompted gold to rebound from yesterday's low and return to near $4,350.

For investors, the next focus will be the Federal Reserve's upcoming July meeting minutes. At the July meeting, the Fed decided to hold interest rates unchanged by a vote of 9 to 3, with three officials advocating for a 25-basis-point rate hike, underscoring lingering concerns within the committee over inflation risks. However, the subsequent unexpected drop in July nonfarm payrolls, combined with relatively subdued inflation readings such as the CPI and PPI, led the market to gradually scale back expectations for further rate hikes.

Therefore, the key takeaway from the minutes will be exactly how many Fed officials support further rate increases. If the minutes reveal that, beyond the three dissenters, a sizable number of officials remain concerned about a potential resurgence in inflation and see a need to raise rates further this year, U.S. Treasury yields could head higher again, capping room for a gold rebound. Conversely, if more officials shift their focus to slowing employment and economic growth, the market may further lower the probability of a September rate hike, and a pull-back in the dollar and Treasury yields would favor gold retesting $4,400.

Gold Price Technical Analysis

Gold Price Daily Chart, Source: TradingView

Looking at the daily chart for gold, prices previously rebounded continuously from around $4,000 and briefly broke above $4,400, but have recently failed to hold firmly above this level. Gold tumbled nearly 2% on Tuesday, indicating that significant profit-taking and technical selling remain above $4,400. Currently, gold prices have returned to near $4,350, entering a high-level consolidation phase in the short term.

Meanwhile, gold confirmed a breakdown below the 10-day moving average at Tuesday's close, signaling that bearish momentum has further strengthened and increasing the likelihood of a continued short-term decline, potentially testing support at the 20-day moving average around $4,230.

To the downside, the primary support zone for gold is around $4,310-$4,300. If gold falls below $4,300, it may pull back further toward $4,230.

To the upside, short-term resistance is located at the $4,380-$4,400 mark. If the Federal Reserve meeting minutes lean dovish, driving U.S. Treasury yields lower, and gold breaks back above and holds $4,400, the next target will be the $4,430-$4,450 resistance zone. If $4,450 is breached, gold could make another run at the $4,500 psychological mark.