Gold Weekly Forecast: XAU/USD could target $1,800 if US T-bond yields push lower

• Gold registered its largest weekly gain of 2021.
• XAU/USD could target $1,800 with a daily close above $1,785.
• Gold continues to react to movements in US Treasury bond yields.

The XAU/USD pair spent the first half of the day in a relatively tight range below $1,750 but rose sharply on Thursday amid a steep decline witnessed in the US Treasury bond yields. Gold managed to preserve its bullish momentum ahead of the weekend and advanced to its highest level since late February at $1,783 on Friday. On a weekly basis, the precious metal posted its largest percentage gain since December, nearly 2%.

What happened last week

In the absence of significant macroeconomic data releases at the start of the week, the decent demand seen at the 10-year US Treasury note auction did not help yields to gain traction and made it difficult for the greenback to find demand. 

On Tuesday, the data published by the US Bureau of Labor Statistics revealed that annual inflation, as measured by the Core Consumer Price Index (CPI), edged higher to 1.6% in March from 1.3%. Although this reading surpassed the market expectation of 1.5%, it failed to provide a boost to yields as it confirmed that price pressures were not yet as strong as initially feared. The benchmark 10-year US T-bond yield lost more than 3% on a daily basis and allowed XAU/USD to remain in the upper half of its range.

While speaking at a virtual event organized by the Economic Club of Washington on Wednesday, FOMC Chairman Jerome Powell reiterated that it was really unlikely for the Fed to start raising rates before the end of 2022. “Low inflation, deflation reduce the ability of the central bank to fight downturns,” Powell added. "We want to overshoot inflation moderately after we've been below 2%." 

On Thursday, the US Census Bureau announced that Retail Sales in March surged by 9.8% following February’s 2.7% decline. Furthermore, the weekly Initial Jobless Claims fell to the lowest level in a year at 576,000. These upbeat figures provided a boost to market sentiment and the S&P 500 Index climbed to a fresh record high. Consequently, the USD continued to face strong selling pressure and the 10-year US T-bond yield slumped to its lowest level in more than a month. In turn, XAU/USD gained more than 1.5% on the day.

The last data of the week from the US showed that the University of Michigan’s Consumer Sentiment Index rose modestly to 86.5 in April from 84.9. Nevertheless, the USD selloff remained intact and XAU/USD extended its rally beyond $1,780.

Next week

There will not be any significant macroeconomic data releases at the start of the week. On Tuesday, the labour market report from the UK will be looked upon for fresh catalysts. Although this event is unlikely to have a direct impact on gold’s valuation, a sharp movement in the GBP/USD pair could drive the USD’s overall market performance.

On Thursday, the European Central Bank will announce its Interest Rate Decision and release the Monetary Policy Statement. Investors are not expecting any changes to policy but the bank could provide forward guidance with regards to changes in asset purchases. A dovish policy outlook is likely to weigh on the shared currency and ramp up the demand for the USD. 

Finally, the IHS Markit will release the preliminary April Manufacturing and Services PMI reports for the euro area, Germany, the UK and the US. Market participants are likely to ignore the headline figure and focus on the underlying details that can reveal fresh insights with respect to input price constraints. Meanwhile, investors will continue to keep a close eye on yields.

Gold technical outlook

On the daily chart, the Relative Strength Index (RSI) indicator rose to its highest level since early January above 60. Although the RSI suggests that there is more room on the upside before XAU/USD becomes technically overbought, the pair might try to confirm the 50-day SMA as support before the next leg up. 

On the upside, a daily close above $1,785 (Fibonacci 38.2% retracement of the January-March downtrend) could open the door for additional gains toward $1,800 (psychological level) and $1,805 (100-day SMA). 

On the other hand, the initial support is located at $1,755 (static level, 50-day SMA) ahead of $1,745 (former resistance) and $1,735 (20-day SMA). At the current technical setup, only a daily close below $1,755 could be seen as an attractive development for sellers. 

Gold sentiment poll

The bullish shift in gold’s near-term outlook is also reflected in the FXStreet Forecast Poll. The average target on a one-month view currently sits at $1,787, compared to $1,705 previously. In the short term, several experts see gold testing $1,800 next week.