Gold Price Forecast: XAU/USD struggles around yearly resistance line with eyes on Fed

• Gold's safe-haven allure draws in the bulls to target the $1,850s.
• A bid through the prior daily highs will take on the $1,850 and open risk to the $1,870s.

Update: Gold (XAU/USD) bounces off intraday low to extend the previous day’s recovery moves towards a one-year-old descending trend line. That said, the yellow metal picks up bids to $1,841 by the press time of Tuesday’s Asian session.

Although fears of the Fed’s rate hike and geopolitical concerns surrounding Russia-Ukraine exert downside pressure on gold prices, the metal’s traditional safe-haven appeal keeps it on the bull’s radar amid downbeat US Treasury yields and the sluggish US dollar.

Adding to the risk catalysts are the mixed concerns over China’s Evergande and the People’s Bank of China’s (PBOC) rate cut. The struggles real-estate major from Beijing is in talks with creditors to overcome the looming financial crisis, per the latest updates. However, an absence of solution and a long line of likely defaulters from China test the risk-on mood. It’s worth noting that the PBOC cut reverses repo by 10 basis points (bps) the previous day.

Also favoring the gold buyers could be the hopes of overcoming the virus variant and downbeat US PMI data.

Amid these plays, the US Treasury yields struggle for a clear direction after four-day downtrend while US stock futures and Asia-Pacific shares print losses at the latest.

End of update.

 

Gold prices edge higher on Monday as safe-haven buying emerged. The precious metal moved in close quarters with the psychological $1,850 area printing a high of $1,844.18 in the NY session and is starting Tokyo a touch under pressure near $1,842.

The drivers in the market are geopolitical, for now, until the Federal Reserve meeting last in the week. Despite rising expectations, the US Fed will raise rates faster than previously expected, investors have been moving into gold for its safe-haven qualities.

Inflows into gold back ETFs continue to surge, analysts at ANZ bank noted. ''SPDR Gold Shares, the largest ETF recorded its biggest net inflow in USD terms since listing in 2004. By weight, 27.6 tonnes were added.''

Gold advanced on Monday as a selloff in Wall Street driven by geopolitical tensions over Ukraine drove demand for the precious metal. Spot gold rose over 0.5% per ounce. US gold futures settled up 0.5% at $1,841.70 after NATO said it was putting forces on standby in eastern Europe in response to Russia's military build-up at Ukraine's borders. Russia denounced NATO's move as an escalation of tensions.

Meanwhile, the US dollar climbed to a two-week high on Monday against a basket of currencies as measured by the DXY index. The dollar index rose 0.67% to 96.12 during the US session. The greenback tends to perform at times of risk-off and owing to the slight yield advantage. It is also set to outperform the likes of the CHF and the yen should tensions escalate.

For instance, antagonising Russia, the United States is considering transferring some troops stationed in western Europe to eastern Europe in coming weeks and US President Joe Biden has already ordered diplomats' families to leave Kyiv.

Eyes on the Fed

As for the Federal Reserve risk, the US dollar index has gained some 1.5% since Jan. 14 in anticipation of a hawkish outcome from this week's interest rate decision. Several banks have raised forecasts for the speed and size of the Fed's policy tightening. 

Most expect the first hike to be 0.25% in March and three more to 1.0% by year-end. The Fed has already signalled the start of interest rate hikes in March, but traders will be tuning in to see if the statement indicates how fast it will shrink down its holdings of Treasuries and mortgage debt on the balance sheet from beyond $8 trillion.

Gold positioning

''Gold ETFs recorded a massive inflow totalling nearly 900k oz on Friday, in a sign that equity market turbulence is finally leading to a rise in safe-haven demand for the yellow metal. While the recorded inflows may be distorted by options-related activity, the concurrent rise in volatility also suggests some safe-haven appetite building,'' analysts at TD Securities said in a note.

However, the analysts warn ''with Lunar New Year around the corner, Chinese physical demand may subside just as CTA inflows run out of steam. In fact, CTA trend followers are set to liquidate some gold length should prices break below $1815/oz.''

Gold technical analysis

As per the pre-open analysis this week, Gold, Chart of the Week: Bulls pining for $1,850+, could be just a Fed away, the price has been moving in on critical resistance:

Gold, prior analysis

Gold, live market update

A bid through the prior highs will take on the $1,850 and open risk to the $1,870s in the coming sessions.