Gold Price Forecast - XAU/USD climbs back above $1,830 level amid retreating bond yields

• Gold is under pressure in Asia as the bears step in and bulls back the US dollar.
• US CPI is the highest in 40-years and the Fed is now expected to act in kind. 

Update

Gold price attracted some dip-buying near the $1,821 region on Friday and for now, seems to have stalled the previous day's retracement slide from over a two-week high. Against the backdrop of geopolitical risks, a generally weaker tone around the equity markets acted as a tailwind for the safe-haven XAU/USD. Apart from this, concerns about the continuous rise in the US consumer prices further benefitted the precious metal's status as a hedge against inflation. In fact, data released on Thursday showed that the headline US CPI accelerated to a 40-year high in January.

The red-hot US inflation reinforced expectations that the Fed would adopt a more aggressive policy response to combat high inflation and bets for a 50 bps rate hike in March. Adding to this, St. Louis Fed President James Bullard called for 100 bps rate hikes over the next three FOMC policy meetings. This, in turn, pushed the yield on the benchmark 10-year US government bond beyond the 2% threshold for the first time since mid-2019. Adding to this, the 2-year note, which is highly sensitive to rate hike expectations, climbed to its highest level since January 2020.

The US bond yields, however, retreated a bit from the aforementioned highs, which prompted some intraday US dollar selling. This, in turn, was seen as a key factor that extended some support to the dollar-denominated commodity, though the uptick lacked bullish conviction. The prospects for a faster policy tightening continued acting as a headwind for the non-yielding gold and warrants some caution for aggressive bullish traders. Hence, it will be prudent to wait for a strong follow-through buying before positioning for the resumption of a two-week-old bullish trend.

Nevertheless, the metal has now moved into the positive territory and was last seen hovering near the daily high, just above the $1,830 level. Market participants now look forward to the US economic docket, featuring the release of the Prelim University of Michigan US Consumer Sentiment Index. This, along with the US bond yields, will influence the USD price dynamics and provide some impetus to gold prices. Apart from this traders will take cues from the broader market risk sentiment for some short-term opportunities around the XAU/USD on the last day of the week.

Technical analysis

From a technical perspective, any subsequent move up is likely to confront some resistance near the $1,832-$1,833 region ahead of the overnight swing high, around the $1,842 area. Some follow-through buying has the potential to push gold prices back towards the January swing high, around the $1,853 area. The latter nears a downward-sloping trend-line resistance, extending from June 2021. A convincing breakthrough will be seen as a fresh trigger for bullish traders and set the stage for a further near-term appreciating move for the metal.

 

On the flip side, weakness back below the $1,825 level might continue to attract some buying and remain limited near the $1,818 horizontal support. This is followed by the very important 200-day SMA, currently around the $1,807 region, which if broken decisively will negate any positive bias and shift the bias in favour of bearish trades. Gold would then turn vulnerable to weaken further below the $1,800 mark and test the next relevant support near the $1,790 region before eventually dropping to 2020 low, around the $1,780 area.

Update: Gold (XAU/USD) prices keep the US inflation-led losses around $1,825 during Friday’s Asian session.

The yellow metal rose to the highest levels in three days the previous day before the US Consumer Price Index (CPI) data propelled US Treasury yields to fresh 2.5-year.

The pullback in gold prices gets additional strength from upbeat Fedspeak and weaker equities. On the same line are the recently loud chatters over Russia, China and North Korea, especially from the US.

The geopolitical and Fed-linked concerns join ECB President Christine Lagarde’s rejection to rate hike and add strength to the US dollar.

That said, the US Dollar Index (DXY) rises 0.25% intraday near 95.92 by the press time whereas the US Treasury yields seesaw around 2.035%, close to the highest level since July 2019 flashed the previous day. Additionally portraying the risk-off mood, as well as weighing on the gold prices, are the Asia-Pacific stocks that drift lower of late.

Moving on, the preliminary readings of the US Michigan Consumer Sentiment Index for February, expected 67.5 versus 67.2 prior, will decorate the calendar but risk catalysts are more important.

End of update.

Trading in a tight $3.50c/oz range in Asia Friday, with Japan out on holiday, gold, XAU/USD, is flat on the day so far following a lively day on Wall Street following the hot US inflation data. Gold is trading near $1,825 at the time of writing and is oscillating at the foot of the bearish daily close from Thursday's business. 

US CPI highest in 40-years

The January Consumer Price Index data was showing a 7.5% YoY lift in prices which spooked markets on Thursday. On a core basis, inflation lifted 6.0% YoY after gaining 0.6% during January. Both the core and headline inflation were stronger than expected. The data added to the view of some investors that the Federal Reserve may need to act aggressively to curb rising inflation.

Fed's James Bullard now wants a full percentage point of interest rate hikes over the next three central bank policy meetings. He even said the Fed could rate hike san inter-meetings and some Fed watchers have taken that to mean that there could be an emergency meeting and subsequent rate hike before the March meeting. 

As a consequence major US stock indexes ended sharply lower and Asia follows suit. The Nasdaq was falling more than 2% when the US 10-Year Treasury yield touched 2% for the first time since August 2019. The dollar index (DXY), a gauge of the greenback's value against six major currencies, jumped 0.5% but ended almost flat as currency markets accounted for the macro inflation outlook and started to position into commodity currencies also. AUD/USD rallied to test 0.72 the figure on the notion that commodity prices would climb. However, the bulls have met a wall of supply there and the price is falling below a key 0.7150 level in Asia as the US dollar starts to attract buyers again here in Asia. 

''Ultimately, we expect that macro headwinds will catalyze a breakdown in price,'' analysts at TD Securities had to say on their outlook for gold prices. ''Our ChartVision framework further supports our view, suggesting that a break below $1750/oz by July 2022 would be consistent with a sustained downtrend in the yellow metal.''

Gold technical analysis

Staying with the pre-US CPI analysis from the prior sessions, the outlook is bearish.

Gold prior analysis

In the chart below, it was shown that the price has reached the neckline of the M-formation to the rounded down $1,828.

This mattered because this is an area of liquidity that could lead to supply entering the market which would typically cap the price. This leaves the focus on the downside which leaves the $1,811 vulnerable:

It was stated that the W-formation's neckline aligned near a 50% mean reversion of the prior bullish impulse in an ''area'' between $1,811 and $1,808 where the bears could be looking to target.

Gold live market