Gold Price Forecast: XAU/USD at make or break near $1,915, Fed policy eyed

Update: Gold (XAU/USD) has extended its weakness on Tuesday significantly as the market participants have started pricing in a 25 basis point (bps) interest rate hike by the Federal Reserve (Fed) post its two-day monetary policy meeting. Fed’s Chair Jerome Powell in his testimony clearly mentioned that the extension in borrowing rates is highly required to curtail the soaring inflation. And, this time the Fed won’t take the bullet but pass on the remedy of a 25 bps rate hike to the commercial banks.

Earlier, the gold prices were hitting the rooftop on escalating tensions between Russia and Ukraine. Well, after a three-week-long invasion of Ukraine for now, the nation has witnessed a significant crisis. Moreover, Russia has also found some serious dents on its financial condition, which will remain for decades. Therefore, the worst from the Russia-Ukraine war has been priced in the last gold rally and any more tension escalated headline may not bring a principal upside wave in the risk-aversion theme. This is the major driver behind the carnage in the precious metal prices along with the rising odds of an interest rate hike by the Fed.

End of Update

The gold price is down 1.5% at the time of writing after falling from a high of $1,954.72 to a low of $1,907.08, slipping below a critical level on the daily chart with the downside now fully exposed. The price of oil has been falling and markets are volatile ahead of tomorrow’s US Federal Reserve decision.

This offers something for both the bulls and bears in the gold market, but little progress has been achieved in the talks between Ukraine and Russia with Putin accusing Ukraine of not being serious about finding a mutually acceptable solution. This can lend support to the price of gold. However, the hopes of a nuclear deal with Iran can keep the optimism alive and weigh on the yellow metal, for oil has been a major contributor to the risk-off sentiment of late that had been supporting price higher. 

For that matter, US stocks rose midday Tuesday while the slump in crude oil deepened. S&P 500 had lifted 1.8% by 19.00GMT.  European equity markets were weaker, however, with the Euro Stoxx 50 down 0.1% while the FTSE 100 fell 0.2%. The US yield on the US 10-year note lifted just 1.6bps to 2.149% while the German bond yield fell 4bps.

US Producer Price inflation eased more than forecast on the eve of a likely rate increase by the Federal Reserve where it is expected to him interest rates. Last week, the Fed's Chairman, Jerome Powell gave a green light for a 25bp liftoff in March during his testimony before Congress.

The central bank would be now expected to convey the message that despite the ongoing conflict between Russia and Ukraine, the Fed is ready to continue with its process of monetary policy normalization during the rest of the year. That would be expected to support the greenback

As for the trajectory of the gold price, it has already shown its cards in the recent break of $1,914, the March 2 low. While this area is acting as support with the price back to $1,920, the bearish commitments could see a strong daily close below there in the coming days that could catalyze a substantial selling program.

''If the market has started to discount a future in which the growth shock could fade at a faster pace than the inflation shock, as we exected, then gold prices could be especially vulnerable to a more hawkish Fed profile, opening the door to a deeper consolidation,'' analysts at TD Securities explained.

Gold technical analysis

The price is breaking the trendline and has printed an M-formation on the daily chart. A reversion to test the counter trendline and neckline of the pattern could be in order prior to the next leg lower.