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Gold Price Forecast: XAU/USD range play intact, Ukraine/inflation concerns offset hawkish Fed

  • Gold edged lower during the Asian session on Monday, though the downside remains cushioned.
  • The Fed’s hawkish outlook, surging US bond yields underpinned the USD and acted as a headwind.
  • The Ukraine crisis, and inflation fears helped limit losses ahead of the US CPI and the ECB meeting.

Gold struggled to capitalize on last week's modest gains and edged lower during the Asian session on Monday, snapping a three-day winning streak. The US dollar continued drawing support from the Fed's hawkish outlook and stood tall near the highest level since May 2020, which, in turn, acted as a headwind for the dollar-denominated commodity. In fact, the minutes of the March FOMC meeting showed that many participants were prepared to raise the interest rate by 50 bps in the next few meetings amid concerns that inflation has broadened through the economy. Apart from this, worries that the recent surge in commodity prices would put upward pressure on the already high consumer inflation pushed the US Treasury bond yields to a fresh multi-year peak. This was seen as another factor that undermined the non-yielding yellow metal, though a combination of factors helped limit the downside, at least for the time being.

Investors remain concerned about the economic costs of the war in Ukraine, which was evident from a generally weaker tone around the equity markets. In the latest developments, Russian forces continued shelling targets in eastern Ukraine on Sunday and destroyed the airport in the city of Dnipro. Moreover, Russia's defence ministry said that high-precision missiles had destroyed the headquarters of Ukraine's Dnipro battalion in the town of Zvonetsky. This, along with inflation fears, bolstered the safe-haven gold's appeal as a hedge against rising costs. Hence, the market focus will remain glued to the US consumer inflation figures, scheduled for release on Tuesday. Traders might also prefer to wait on the sidelines ahead of the European Central Bank meeting on Thursday. In the meantime, the incoming geopolitical headlines will influence the risk sentiment and provide some impetus to the XAU/USD.

Technical outlook

Looking at the technical picture, gold has been oscillating in a familiar trading range over the past one month or so. Given the recent sharp pullback from the vicinity of the all-time high, the range-bound price action could be categorized as a bearish consolidation phase. That said, repeated failures to find acceptance below the $1,900 mark and the subsequent move up favour bullish traders.

The lack of follow-through buying, however, warrants some caution. Moreover, technical indicators on the daily chart - though have recovered from the negative territory - have been struggling to gain any meaningful traction. The mixed technical setup makes it prudent to wait for a sustained break through the near-term trading range before placing aggressive directional bets.

From current levels, momentum beyond the $1,950 level is likely to confront resistance near the $1,964-$1,966 region. Sustained strength beyond should provide an additional lift to gold prices and allow bulls to aim back to reclaim the $2,000 psychological mark.

On the flip side, the $1,924 horizontal zone now seems to protect the immediate downside ahead of the $1,915 region. This is followed by the $1,900-$1,890 strong support, which if broken decisively would set the stage for a slide towards the next relevant support near the $1,872-$1.870 zone.

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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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