Gold Price Forecast

ANALYSIS OF GOLD (XAU/USD)

• The precious metal is under pressure due to the strong USD and weak Chinese industrial data.

• The recent bearish momentum in gold (XAU/USD) may be exacerbated by the stock market's decline.

Gold is trading lower in the London AM session on Monday, continuing last week's downtrend. Fundamentally, gold's outlook is bearish, as global interest rates rise in response to rising inflation, reducing the appeal of holding the non-interest-paying commodity.

The US dollar index (DXY) is a weighted currency index that serves as a benchmark for the performance of the US dollar. DXY is continuing its upward trend after last week's US inflation data for April, which was lower than expected in March, surprised to the upside. Higher inflation data supports the value of the dollar at a time when the Fed is eager to raise the Fed funds rate. According to current market expectations, the Fed will raise rates another 190 basis points before the end of the year.

The dollar effect on gold appears to outweigh the inflation effect on gold prices. Gold has been lauded as an inflation hedge; however, the relationship holds up better over time, implying that higher inflation in the short term is more likely to result in lower gold prices due to the stronger dollar and higher interest rate adjustment that usually follows.