Gold Forecast: XAU/USD struggles for direction, consolidates around $1,870

Update: Gold lacked any firm intraday direction and seesawed between tepid gains/minor losses through the early North American session. The commodity was last seen hovering in the neutral territory, around the $1,870 region and had a rather muted reaction to mixed US macro releases.

Retreating US Treasury bond yields failed to assist the US dollar to capitalize on the overnight rebound from multi-month lows, instead prompted some fresh selling. This, in turn, was seen as a key factor that extended some support to dollar-denominated commodities, including gold.

That said, a generally positive tone around the European equity markets and a goodish intraday rebound in the US equity futures acted as a headwind for the safe-haven gold. Apart from this, hints that the Fed has begun debating on QE tapering further collaborated towards capping gains for the non-yielding yellow metal.

Meanwhile, a subdued/two-way price moves since the beginning of this week's could be seen as the first sign of bullish exhaustion. However, the emergence of some dip-buying at lower levels warrants some caution before confirming that gold has topped out in the near term and positioning for any meaningful corrective slide.

Update: This Thursday, gold price is looking to extend the recovery from near the $1860 region. In the view of FXStreet’s Dhwani Mehta, XAU/USD looks to challenge three-month highs despite Fed’s tapering jitters. Gold is trending within a rising wedge formation on the four-hour chart, as markets weigh in the implications of the FOMC minutes. Also, the persisting volatility in the crypto space keeps the buoyant tone intact around gold. However, the further upside appears elusive unless the $1900 mark is recaptured on a sustained basis.

Read: XAU/USD set to test three-months highs at $1890 amid crypto volatility

Update: Gold reversed an intraday slide to the $1,864 area and refreshed daily tops heading into the European session. The precious metal attracted some dip-buying on Wednesday and was supported by a combination of factors. As investors looked past hawkish FOMC minutes, a softer tone around the US Treasury bond yields failed to assist the US dollar to capitalize on the overnight bounce from multi-month lows. This, in turn, was seen as a key factor that drove some flows towards the non-yielding yellow metal. Apart from this, a generally softer tone around the equity markets further acted as a tailwind for traditional safe-haven assets, including gold.

That said, the uptick lacked any strong follow-through amid hints that the Fed has begun debating on QE tapering. The minutes of the April FOMC meeting revealed that several participants suggested it might be appropriate at some point to adjust the pace of asset purchases if the economy continued to make rapid progress towards the Committee’s goals. This, in turn, might keep a lid on any strong gains for the non-yielding yellow metal, warranting some caution before placing aggressive bullish bets.

Update: Gold price is edging higher above $1870, looking to extend its post-FOMC minutes led slide to $1863 levels. The renewed weakness in the US Treasury yields offers fresh boost to gold price. The FOMC April meeting’s minutes revealed that a debate on tapering of the bond-buying programme could be on the table “at some point.” With tapering bets returning, the 10-year Treasury yields shot to 1.67% while the US dollar index hit a two-day high near 90.30. Gold price came under additional downside pressure after China’s State Council said that they will crackdown on malicious trading and investigate behavior in commodities that bids up prices." Attention now turns towards the US weekly jobless claims data for fresh trading incentives.

Read: FOMC April Minutes: The first shoe drops

At the time of writing, XAU/USD is trading at $1,879 and has travelled bid from a low of $1,852.23 to a high of $1,890.14 reaching a 3-month high on Wednesday.

The US dollar is under pressure as traders await April’s Federal Open Market Committee minutes that are widely expected to reiterate policymakers' intention to stay the course and leave key interest rates near zero for the foreseeable future.

Inflationary concerns, along with a weakening US Dollar index that fell to a 4-month low of 89.688, are helping to keep precious metals elevated. Meanwhile, US Treasury yields were little changed.

Casting minds back to last week,  Fed Vice Chair Richard Clarida said that the weak jobs report showed the economy was not strong enough for the Fed to start considering withdrawing its stimulus efforts.

Traders are buying the mantra and gold prices are enjoying the Goldilocks environment with ultra-loose monetary policy and a softer dollar which are a cocktail for higher inflation.  

''Gold prices are outperforming against real rates as CTA trend followers continue to cover their shorts,'' analysts at TD Securities explained. 

''Supportive institutional flows have helped the yellow metal break out from its downtrend, with signs discretionary capital is once again flowing into gold, most recently highlighted by rising ETF flows alongside rising money manager positioning,'' the analysts added. 

''With investors sounding the alarm over inflation, institutional interest in the precious metals complex is likely to continue rising following months of outflows.''

Nonetheless, the analysts have noted that the gold price is also underperforming against periods of high inflation, which fuels their conviction for upside risks in the yellow metal. 

Meanwhile, cryptocurrencies have taken the spotlight, plunging in the wake of regulatory moves from China.

Bitcoin sank like a stone to its lowest level since January and it has now retraced a 61.8% Fibonacci of the bulk of the 2020-YTD rally.

This new sell-off occurred in the wake of China's decision to ban financial and payment institutions from providing digital currency services. 

Gold prices likely picked up a safe-haven bid in the process. 

Previous Updates

Update: Gold (XAU/USD) stays on pressures, refreshing intraday low with a 0.15% loss to $1,866.67, amid Thursday’s initial Asian session. Even if traders await fresh clues to extend the FOMC Minutes-led sell-off in gold prices, chatters over US-China and Aussie-Canberra tussles seem to weigh on the sentiment of late.

It’s worth noting that the market’s risk-off mood, backed by the US Federal Reserve’s (Fed) signals of tapering talks, propelled the US Treasury yields and the US dollar index (DXY), also dragging the gold from a 4.5-month high the previous day.

Given the lack of crucial data going forward, gold traders will keep their eyes on the risk catalysts, mainly concerning the Fed tapering and covid, for fresh impulse.

Update: After rising to a fresh multi-month high of $1,890 earlier in the day, the XAU/USD pair reversed its direction in the late American session and erased the majority of its daily gains. As of writing, XAU/USD was virtually unchanged on the day at $1,870. In the minutes of its April 27-28 meeting, the FOMC noted that a number of participants saw it appropriate to start discussing a plan for adjusting the pace of asset purchases in the upcoming meetings. Furthermore, the publication revealed that some policymakers voiced their concerns over inflation building to "unwelcome levels" before it becomes evident to induce a policy reaction. On the back of FOMC's hawkish tone, the 10-year US Treasury bond yield is rising more than 3% at 1.685% and continues to weigh on gold. 

Previous pdate: Gold price (XAU/USD) witnessed a volatile session on Wednesday, initially falling to the $1850 zone before rebounding firmly to renew three-month highs of $1890. The pullback, however, lost legs, as the gold price once again retraced towards $1860. The price of gold bounced back towards the $1900 mark after a risk-aversion gripped markets on a massive collapse across the crypto board. Investors flocked to safety in the traditional safe-haven gold, as most major crypto assets lost as much as 30% of their value during the crash.

Read more: Gold Price Forecast: XAU/USD looks to challenge three-month highs despite Fed’s tapering jitters