Gold Price Forecast: XAU/USD starts the Fed week on the defensive, where next?

Gold price is looking to extend the previous week’s downtrend, sitting at weekly lows near $2,150 in Asian trading on Monday. An upbeat market mood combined with the US Dollar (USD) consolidating its upside alongside the US Treasury bond yields is boding ill for Gold price at the start of a big central banks’ week.

Gold price gears up for volatility in the Fed week

Gold price is trading in the red for the third day in a row on Monday, undermined by fading hopes of a US Federal Reserve (Fed) interest cut in June, in the face of the hotter-than-expected Producer Price Index (PPI) inflation data released last week.

Further, the University of Michigan's (UoM) five-year Inflation Expectations held steady at 2.9%, supporting the bets for a delay in the Fed’s policy pivot this year.

Data showed on Thursday that the PPI for February rose 0.6% MoM, up sharply from 0.3% in January while beating the market estimate of 0.3%. The reading was the highest rate since August 2023. PPI increased at an annual rate of 1.6%, up from a revised 0.9% in January.

Against this backdrop, the US Dollar staged a solid comeback and hit the highest level in a week at 103.40 against its major counterparts while the US Treasury bond yields reached three-week highs. The benchmark 10-year US Treasury bond yields briefly regained the 4.30% level, where it now wavers.

The Greenback has entered an upside consolidative mode in Monday’s Asian trading hours, suggesting that buyers could be gathering strength for the next leg higher. Gold price, therefore, remains pressured, despite encouraging economic activity data from the world’s top Gold consumer, China.

China’s Retail Sales rose 5.5%, better than the 5.2% increase forecast while Industrial Production increased 7.0%, compared with estimates of a 5.0% growth. Fixed asset investment rose by 4.2%, beating the forecast of 3.2%.

Uncertainty around the Fed policy announcements and the Dot Plot chart keeps Gold buyers on the defensive, as investors scout for some assurance in the US Dollar. In the meantime, Gold price could remain at the mercy of risk trends and the Fed expectations.

Further, the Bank of Japan (BoJ) policy decision on Tuesday could also have a significant impact on the Gold price. In case, the BoJ announces an exit from its negative interest rate policy (NIRP), a USD/JPY collapse is likely to ensue, dragging the Greenback lower alongside. Gold price could subsequently benefit from the US Dollar decline.

On a steady BoJ policy outcome, Gold price could see additional downside due to the USD/JPY ‘rub-off effect’ on the US Dollar.

Gold price technical analysis: Daily chart

As observed on the daily timeframe, a potential Bull Flag formation remains in play, with a daily closing above the falling trendline resistance at $2,170 needed to confirm the bullish continuation pattern.

Acceptance above the latter will trigger a fresh upswing toward the $2,190 level, above which the record high at $2,195 will be retested.

The next key upside targets are seen at the $2,200 threshold and the $2,250 psychological level.

The 14-day Relative Strength Index (RSI) has eased from the overbought region to now trade near 66.00, suggesting that every dip could be a good buying opportunity for Gold traders.

If Gold sellers extend control and breach the falling trendline support at $2,138 on a sustained basis, a further decline toward the March 6 low of $2,125 cannot be ruled out.

Further down, the key round level of $2,110 will challenge bullish commitments.