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Gold Price Forecast: Acceptance above $1,900 is critical for XAU/USD, US CPI in focus

  • Gold price is holding firmer near six-week highs amid broad US Dollar sell-off
  • Mixed United States jobs data and SVB fallout revive dovish Federal Reserve bets.  
  • Gold price could resume its uptrend on a sustained break of $1,900.

Gold price has set off the week on a solid footing this Monday, having hit the highest level in six weeks just shy of the $1,900 mark. Revival of dovish US Federal Reserve (Fed) expectations amid mixed United States Nonfarm Payrolls (NFP) data and the Silicon Valley Bank (SVB) fallout have weighed significantly on the United States Dollar (USD) while boosting the Gold price.

Dovish Federal Reserve bets back in play

The US Dollar is teasing fresh monthly lows near 103.75 against its major rivals, as the selling interest remains unabated early Monday, following a bearish opening gap. The US Dollar Index is down 0.77% on the day at 103.77, at the time of writing, while the Gold price is consolidating the latest upswing near $1,885.

The US Dollar is reeling from the pain of the mixed United States labor market report released on Friday, which showed that The US economy added 311K jobs in February when compared to the +205K expected and the stunner 517K job gains seen in January. The Average Hourly Earnings arrived at 4.6% YoY in February vs. 4.7% expected and 4.4% previous. Meanwhile, the US Unemployment Rate climbed to 3.6% in the reported month vs. 3.4% expected and 3.4% last. In an immediate reaction to the US jobs data, the Fed swaps downgraded the odds of a 50 basis points (bps) March rate hike to under 50% vs. around 70% pre-NFP release.

During the same time, concerns over the Silicon Valley Bank (SVB) and Singapore Bank default gathered momentum but the weekend rescue plan unveiled by the US regulators offered some comfort to markets. Risk sentiment rebounded on Monday, exacerbating the pain in the US Dollar. In light of the banking stress in the United States, Goldman Sachs revised down its Fed rate hike outlook, now stating that the Federal Reserve will not deliver any rate hike at its March 22 meeting. Meanwhile, JP Morgan called on for a 25 bps March Fed rate increase.

With dovish Fed rate hike bets back in play, risks remain skewed to the downside for the US Dollar, motivating Gold bulls to extend the three-day recovery mode.

United States Consumer Price Index – the last hope for US Dollar

That said, attention now turns toward the United States Consumer Price Index (CPI) release on Tuesday for fresh signals on the March Federal Reserve rate hike move. On an annualized basis, the Consumer Price Index data is seen declining to 6.0% and the Core CPI, which excludes volatile food and energy prices, is also expected to edge a tad lower to 5.5% from January’s 5.6%. Meanwhile, the headline CPI data is seen falling to 0.4% MoM in February, compared with a 0.5% increase reported in January. The Core CPI is likely to steady at 0.4% MoM in the reported month.

A softer-than-expected US inflation data could add extra legs to the ongoing downslide in the US Dollar, as Gold price could extend its journey toward the $2,000 threshold. The US Dollar bulls need an upside surprise in the US Consumer Price Index to revive hawkish Fed expectations and stem the Gold price rally.

Gold price technical analysis: Daily chart

Gold price has yielded a decisive break above the mildly bullish 50-Daily Moving Average (DMA) at $1,873, extending Friday’s upsurge to six-week highs of $1,895.

Although Gold bulls have taken a pause before resuming the uptrend. The retracement in Gold price could retest the 50DMA resistance-turned-support, below which the daily low at $1,868 could come into play.

However, any pullback in Gold price appears limited, as the 14-day Relative Strength Index (RSI) holds comfortably above the midline.

Gold bulls will need to take out the intraday high at $1,895 to resume the upside to test the $1,900 barrier.

Daily closing above the latter is critical to initiate a meaningful advance toward the year-to-date highs of $1,960.

Ahead of that, the February 3 high of $1,919 needs to be scaled by Gold buyers.

Author

Dhwani Mehta

Dhwani Mehta

FXStreet

Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.

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