Gold Price Forecast: XAU holds in bullish territory despite hawkish Fed

Update: The gold price is on firm grounds in Asia towards the end of the week following a solid performance on Wall Street where fresh daily highs were scored. The bulls moved in as risk apatite dwindled and gold prices gained amid the strong demand for safe-haven assets.

''Investor demand was also boosted by higher energy prices, which will put further pressure on inflation. Adding to the positive backdrop was a fall in US bond yields. Bonds have been selling off amid hawkish comments from the Federal Reserve,'' analysts at ANZ Bank said.

Federal Open Market Committee member Loretta Mester favoured some 50bp hikes this year, adding that the economy has excess demand. She doubts rate hikes will cause a recession and that unwinding the balance sheet will help reduce distortions in the yield curve.

Meanwhile, St. Louis Federal Reserve President James Bullard's messaging remains as hawkish as ever:

Fed's Bullard: US economy will continue to grow above trend this year and next

End of update

The price of gold is higher in mid-week trading as US stocks fell sharply following Moscow's plans to switch its natural gas sales to some countries to roubles. This has sent oil prices and tensions higher in global financial markets. At the time of writing, the gold price is trading near the highs of the day at $1,947.25. The yellow metal rallied from a low of $1,915.64 earlier in the day and is set on a fresh daily high and a bullish close. 

Responding to Western sanctions that have hit Russia's economy hard, President Vladimir Putin said Moscow will seek payment in roubles for gas sales from "unfriendly" countries, while its forces bombed areas of the Ukrainian capital Kyiv a month into their assault

Prices for commodities such as oil and wheat have climbed as tensions in Ukraine have escalated, putting additional upward pressure on already high inflation due to supply chain bottlenecks. Rising inflation has led many central banks, including the US Federal Reserve, to take measures to rein in prices, such as by raising interest rates. However, gold can also benefit from the safe-haven flows amid the uncertainties surrounding the war. 

''Market participants are keenly watching US 10-year rates as they approach a trend-channel that has served multi-decade-long resistance. In this context, gold prices have remained incredibly resilient despite the explosive price action in rates markets following Chair Powell's comments,'' analysts at TD Securities explained. 

US 10-year yield trend channel

The above chart illustrates the trend channel as the 10-year yield move sin towards 2.5%.

''While rates markets are now pencilling in higher odds for a 50bp hike in May, gold markets could be reflecting a growing cohort of participants interpreting the Fed's hiking path as being behind the curve on inflation, as the Fed moves too slowly and cautiously to tame inflation,'' the analysts at TD Securities said 

''In this context, gold prices once again narrowly avoided catalyzing a massive CTA liquidation program last session, but the margin of safety remains low. Such a liquidation event would raise risks that safe-haven buyers could offload length in a vacuum concurrently with massive CTA liquidations. Fortunately, Shanghai traders have seemingly ended a period of liquidations and have meaningfully added to their gold in recent trading sessions.''

Gold technical analysis

The price is completing a 50% mean reversion of the monthly bullish impulse, as illustrated on the weekly chart where the price meets the prior highs and support block. This could see demand move in again and an extension of the upside in the comings weeks.