Gold Price Forecast: XAU/USD bears step on the gas as the US dollar runs higher

Gold is under pressure as the US dollar goes parabolic into the final day of the week.
The bears are fuelled by prospects of geopolitical angst as well as the ongoing hawkish narrative at the Fed.

Ross J Burland FXStreet

Gold prices have been under pressure at the start of Friday, hitting a three-week low and as Reuters reports, the yellow metal is heading for its first weekly decline in five. At the time of writing, gold is trading at $1,755 while the greenback consolidates after a parabolic move due to prospects of more rate hikes by the U.S. Federal Reserve and the return of geopolitical angst. Spot gold The precious metal was down 0.2% after falling to its lowest since July 29 at $1,753.68 in early Asian trading. For the week so far, the metal is down 2.5%.

There was an article that did the rounds by Bloomberg as the Tokyo session opened that sent the US dollar bid and risk-off. The article reported on President Xi Jinping's and Russian leader Vladimir Putin's plans to attend a Group of 20 summit on the resort island of Bali later this year, Indonesian President Joko Widodo said.

“Xi Jinping will come. President Putin has also told me he will come,” Jokowi, as the president is known, said in an interview with Bloomberg News Editor-in-Chief John Micklethwait on Thursday. It was the first time the leader of the world’s fourth-most populous nation confirmed both of them were planning to show up at the November summit.

The US dollar's safe-haven appeal was bringing in the bulls as the article stirred up some geopolitical angst given the Ukraine crisis. For instance, the West could decide to boycott the gathering, for instance. In an interview with ZDF, European Commission President Ursula von der Leyen said: “We have to consider very carefully whether we paralyze the entire G20; I don’t advocate that. In my opinion, G20 is too important, also for the developing countries, the emerging countries, that we should let this body be broken by Putin.”

Meanwhile, stocks on Wall Street were volatile and scatty due to mixed economic data and relatively thin trading volumes while the US dollar marched higher due to hawkish narratives that were ushered into markets again by Fed speakers.

A slew of Fed speakers keeps the doves grounded and dollar bears in hibernation

To start things off on Thursday, San Francisco Federal Reserve Bank President Mary Daly crossed the wires and said in an interview with CNN it was way too early to declare victory on inflation and that said either a 50 basis point or a 75 basis points hike would be appropriate.

Daly's rhetoric kicked up the dust and sent the US dollar higher by 0.12% on the day at 106.78 which has since gone parabolic to print a 107.687 in Tokyo's opening hour. This was especially bad news for the gold bugs as the yellow metal is highly sensitive to rising US interest rates, as these increase the opportunity cost of holding non-yielding bullion. Meanwhile, the US yield curve “steepened” (became a little less inverted), with 2-year yields down 6.4bps to 3.22% and 10-year down 2bps to 2.877%.

Looking ahead, the Fed Chair Jerome Powell's remarks at the Jackson Hole symposium next week will be a key avenue for the Fed to push back against the notable easing in financial conditions sparked by his last remarks, as analysts at TD Securities noted,

''Ultimately, pinning future rate increases to data has sparked a rise in expectations for rate cuts to immediately follow the hiking cycle, sparking a rally in all assets including precious metals. In turn, Jackson Hole could provide a platform for the Fed to push back against market pricing for rate cuts, which should sap investment appetite for gold.''

Gold technical analysis

Gold has formed an M-formation on the hourly chart and the price is testing the neckline currently. A break there opens prospects of a move higher into a phase of consolidation for the day ahead as traders wind down for the weekend:

However, should the bears commit, we could see a downside extension before the week is out:

Author

Ross J Burland

FXStreet

Ross J Burland, born in England, UK, is a sportsman at heart. He played Rugby and Judo for his county, Kent and the South East of England Rugby team.

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