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Gold Price Forecast: XAU/USD bears have the upper hand below $1,960, or 38.2% Fibo.

  • Modest USD strength prompted fresh selling around gold on the last day of the week.
  • The Fed’s hawkish outlook was seen as a key factor that assisted the USD to gain traction.
  • A generally weaker risk tone extended some support to the safe-haven precious metal.

Gold witnessed some selling during the Asian session on Friday and for now, seems to have stalled its recent goodish rebound from sub-$1,900 levels, or the monthly low touched earlier this week. The downtick was sponsored by modest US dollar strength, which tends to undermine demand for the dollar-denominated commodity. The greenback lost traction after the Fed on Wednesday hiked its target fund rate by 25 bps and disappointed some investors expecting a more aggressive increase in borrowing costs. That said, the start of the policy tightening cycle, along with the Fed's hawkish outlook, helped limit deeper losses for the buck.

In fact, the so-called dot plot indicated that the Fed could raise rates at all the six remaining meetings in 2022 to combat stubbornly high inflation. Adding to this, Fed Chair Jerome Powell said that the US central bank could start shrinking its near $9 trillion balance sheet as soon as the next meeting in May. Powell further emphasised that the economy was strong enough to withstand tighter monetary policy and financial conditions. This, in turn, allowed the yield on the benchmark 10-year US government bond to hold steady near its highest point since 2019, which was seen as another factor that acted as a headwind for the non-yielding gold.

The downside, however, remains cushioned, at least for the time being, amid worries about the lack of progress in the Russia-Ukraine peace negotiations. This kept a lid on the recent optimistic move in the markets, instead triggered a fresh leg down in the equity markets and extended some support to the safe-haven XAU/USD. Hence, it will be prudent to wait for some follow-through selling before traders start positioning for the resumption of the recent sharp pullback from the $2,070 area, or the highest level since August 2020. Nevertheless, gold, for now, seems to have snapped two days of the winning streak and remains on track to record its first down week in three.

In the absence of any major market-moving economic releases, the USD price dynamics will continue to play a key role in influencing gold prices. Apart from this, traders will take cues from fresh developments surrounding the Russia-Ukraine saga. The incoming geopolitical headlines, along with a meeting between US President Joe Biden and Chinese leader Xi Jinping would drive the broader market risk sentiment. This, in turn, should provide some impetus to the precious metal and allow traders to grab some short-term opportunities on the last day of the week.

Technical outlook

From a technical perspective, the post-FOMC positive move faltered near the $1,950 region, which is closely followed by the 38.2% Fibonacci retracement level of the $1,780-$2,070 rally. The latter is pegged near the $1,960 area, which if cleared decisively will set the stage for additional gains. Gold might then accelerate the momentum back towards the key $2,000 psychological mark, or the 23.6% Fibo. level.

On the flip side, weakness below the 50% Fibo. level, around the $1,925 zone, might find some support near the $1,918-$1,917 region. Some follow-through selling would expose the 61.8% Fibo. level, around the $1,895 area. Failure to defend the said support levels would be seen as a fresh trigger for bearish traders. The next relevant support is pegged near the $1,850 region, below which gold could slide further towards challenging the very important 200-day SMA, currently around the $1,815 region.

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Haresh Menghani

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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