Gold Price Analysis: XAU/USD consolidates in $1,860 area ahead of Fed speak onslaught

• Gold is consolidating in the $1,860 area amid a mixed, indecisive feel to trade after Monday’s risk-off session.
• Focus is on an upcoming barrage of Fed speak ahead of Wednesday’s release of key April US CPI.

Broader market risk appetite remains mixed and indecisive in the hours prior to the start of the US session, after a resoundingly risk-off Monday. For now, US equity index futures are trading higher in the pre-market amid a rebound in their European peers, while bond yields on both sides of the Atlantic continue to pull back from multi-month/year highs hit on Monday. Energy and industrial metal prices are a tad lower, while conditions in currency markets are fairly mixed and subdued, with the DXY flat but remaining well supported close to recent highs in the upper 103.00s.

Against this backdrop, it perhaps isn't too surprising to see spot gold (XAU/USD) prices consolidating not far above last week’s multi-week lows at $1,850. At present, XAU/USD is trading just above the $1,860 level with gains of about half a percent on the day. The focus of traders now turns to a barrage of upcoming commentary from Fed policymakers throughout the rest of Tuesday’s session. NY Fed President John Williams is slated to speak at 12:40 BST, Raphael Bostic at 13:30 BST, Christopher Waller and Neel Kashkari at 18:00 BST and Loretta Mester at 20:00 BST.

Fed policymakers have thus far seemed very much on board with the policy signal sent by Fed Chair Jerome Powell in wake of last week’s policy meeting and Tuesday’s speakers are expected to stick to the script. Essentially, the Fed wants to get interest rates back to neutral (around 2.5%) by the end of the year and then assess the degree to which it needs to continue lifting interest rates, which will depend on how bad the inflation problem still is.

A big reason for the recent pullback in risk assets (like stocks, crypto, and some economically sensitive commodities like copper), as well as in precious metals, has been fears that they will be taking interest rates into outright “restrictive” territory (i.e. well above the 2.5% neutral level). Demand for gold tends to fade as the “opportunity cost” of holding non-yielding assets rises (i.e. interest rates rise). Longer-term US bond yields are a proxy for this “opportunity cost”, hence gold’s negative correlation to them.

Beyond the upcoming onslaught of Fed speak, trader focus is already turning to Wednesday’s release of the April US Consumer Price Inflation report. Headline price pressures are expected to ease and if this is the case, it could come as a relief to markets. That could give gold a short-term boost. But it remains premature to bet against the Fed taking rates into restrictive territory in 2023 and thus premature to bet on a sustained rebound back to earlier annual highs in the $2,000s.