Gold Price Forecast: XAU/USD bears moving in on last week's low, large selling program could be underway

The price of gold remain in the hands of the bears as the US dollar surged to print a new 20-year high at the start of the week. At $1,857, XAU/USD is lower by some 1.38% at the time of writing. The US dollar is off the highs for the day, as per DXY 104.187, but is finding some support in mid-day New York trade, currently climbing from the 103.392 lows and back to being flat for the day so far. 

The nuts and bolts of the market sentiment stem from the risks associated with China's COVID crisis, the Ukraine crisis, supply chain risks and what this all now means for commodity prices and the central bank reaction function in global monetary policy. 

Markets are anticipating a series of interest rate hikes from the US Federal Reserve and a global economic growth slowdown which has been supporting the US dollar. The dollar has risen for five straight weeks as US Treasury yields have climbed on expectations the Fed will be aggressive in attempting to tamp down inflation with no Fed pivot in sight which is a negative risk for the medium term. 

The Fed last week raised rates by 50 basis points as it seeks to lower inflation without tilting the economy into a recession. 75 bps expectations were dialled down by the Fed chairman, Jerome Powell, which initially hurt the greenback. However, the market pivoted the very next day and the greenback soared to what was at the time, a fresh 20-year high in anticipation of a solid labour market report.  

Indeed, on Friday, a solid jobs report cemented expectations for more rate hikes although due to lower wage inflation vs expectations, the prospect of 75bps rate hikes remains off the table. With that being said, the US inflation data will now be the next key data event. 

''Core prices likely stayed strong in April, regaining momentum to 0.5% MoM after recording 0.3% in March,'' analysts at TD Securities said. ''While used vehicles prices likely declined again, they probably fell less sharply than in the last report. We also look for renewed strength in shelter inflation. Our MoM forecasts imply 8.1%/6.1% YoY for total/core prices, likely confirming March was the peak of the cycle.''

Yields on most US Treasury notes have actually pared early gains to trade lower on Monday after the benchmark 10-year yield hit fresh 3-1/2-year highs as inflation fears continue to weigh on risk sentiment. The S&P 500  index down more than 2.7% as growth stocks were again pulled lower by climbing Treasury yields also.

Nevertheless, there is an exodus in gold taking shape and analysts at TD Securities argue that ''gold prices need only close below $1,875/oz to catalyze a substantial selling program that could send the yellow metal below the psychologically important 200dma range.''

Gold technical analysis

As per the pre-open analysis, Gold, Chart of the Week: Bears eye a break of critical $1,875, the level has been well and truly compromised and the bears are moving in on last week's low of $1,850. 

From a 4-hour perspective, the price has broken the first layers of support which opens risk of significantly lower prices for longer:

(Above, Pre-open analysis)

Gold, live H4 chart

As illustrated, the price has respected the pre-open analysis of the resistance and support structures while it melts away to the downside towards the prior week's low. The market is currently around $5.00 short of the $1,850 week low. 

The price action has also left behind a bearish head & shoulders chart pattern and a restest of the counter trendline would be expected to be met with supply. The near-term resistance, $1,861 is proving resilient so far. The 200 dma is located at $1,835.