GOLD:FUNDAMENTALS + TECHNICAL ANALYSIS | SHORT TERM TRADE 🔔

21 Apr 2022

Gold Price Forecast: XAU/USD bears have the upper hand, focus on yields/Fed’s Powell

Gold struggled to capitalize on the previous day’s goodish recovery move from over a one-week low.
Aggressive Fed rate hike bets revived the USD demand and acted as a headwind for the commodity.
The Ukraine crisis and inflation fears could help limit losses ahead of Fed Chair Powell’s appearance.
Gold stalled this week's corrective pullback from the vicinity of the $2,000 psychological mark and attracted some buying near the $1,939 area on Wednesday. Retreating US Treasury bond yields prompted some USD profit-taking following the recent runup to the highest level since March 2020, which, in turn, benefitted the dollar-denominated commodity. Apart from this, concerns around the Russia-Ukraine conflict and rising inflationary pressures further boosted the metal's appeal as a hedge against rising costs. That said, hawkish Fed expectations acted as a tailwind for the US bond yields and the buck, which, in turn, capped the non-yielding yellow metal, instead attracted some selling during the Asian session on Thursday.

The markets seem convinced that the Fed would tighten its monetary policy at a faster pace to curb soaring inflation and have been pricing in multiple 50 bps rate hikes. The bets were reinforced by comments by a slew of influential FOMC members since the beginning of this week. St. Louis President James Bullard said on Monday that the US central bank shouldn’t rule out rate increases of 75 bps. Moreover, Chicago Fed President Charles Evans said on Tuesday that he is "comfortable" with a round of rate hikes this year that includes two 50 bps increases. Adding to this, Minneapolis Fed President Neel Kashkari - one of the more dovish FOMC members - noted that policymakers will need to take even more aggressive action to bring down inflation.

Hence, the market focus will remain glued to Fed Chair Jerome Powell's speech at an International Monetary Fund event later during the US session. In the meantime, traders will take cues from the US economic docket, featuring the release of the Philly Fed Manufacturing Index and the usual Weekly Initial Jobless Claims later. This, along with the US bond yields, will influence the USD price dynamics and provide some impetus to the XAU/USD. Apart from this, fresh developments surrounding the Russia-Ukraine saga should contribute to producing short-term trading opportunities around gold.

Technical outlook
From a technical perspective, the overnight bounce faltered near an ascending trend-channel support breakpoint, now turned resistance. This comes on the back of the recent failure just ahead of the critical $2,000 level and favours bearish traders. A convincing break below the $1,940-$1.935 region will reaffirm the negative bias and make gold vulnerable. Spot prices could then turn vulnerable to accelerate the fall towards the $1,916 intermediate support before eventually dropping to sub- $1,900 levels or March swing lows. Some follow-through selling would mark a fresh bearish breakdown and pave the way for a further near-term depreciating move.

On the flip side, the aforementioned $1,960 support-turned-resistance coincides with the 38.2% Fibonacci retracement level of the $2,070-$1,890 downfall and should act as a pivotal point. Sustained strength beyond has the potential to lift the XAU/USD towards the 50% Fibo. level, around the $1,980-$1,982 region. The upward trajectory could further get extended and allow bulls to make a fresh attempt to reclaim the $2,000 round figure. The latter marks a confluence region comprising the 61.8% Fibo. level and the top end of the ascending channel, which if cleared decisively will shift the bias in favour of bullish traders.

21 Apr 2022

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