Gold Price Forecast: XAU/USD recaptures $1,860 amid cautious optimism

Update: Gold price is looking to reverse Thursday’s drop, as it flirts with daily highs above $1,860, shrugging off the advance in the US dollar and the Treasury yields. The market mood remains cautious amid China’s indebted property sector woes and looming risks of faster monetary policy tightening to combat inflation. Investors rush to hold the traditional safe-haven gold ahead of US President Joe Biden’s announcement of the new Fed Chair, with Lael Brainard running for the top job alongside the incumbent Jerome Powell. Meanwhile, a slew of Fedspeak will keep the traders entertained as the week draws to an end.

The price of gold on Friday in Asia has been drifting sideways but the needle has now moved to the upside. The price is breaking out of the prior range of between $1,858.10 and $1,860.42 and has just printed a high of $1.861.77.

The US dollar is also pushing higher after it took a breather overnight and drifted back from the 16-month highs scored earlier in the week. The dollar index DXY which measures the currency against a basket of six rivals reached its highest since mid-July 2020 on Wednesday at 96.226, but was last trading back at 95.600. 

Markets are now in a state of apprehension over risks of stagflation which makes gold the perfect hedge but also underpins the prospects of a stronger dollar. The move in the greenback has been so far fueled by diverging central bank tightening expectations amid surging inflation around the globe.

This week's US Retail Sales beat expectations on the heels of last week's inflation surprise which led to the surge. Additionally, in Europe, meanwhile, COVID-19 is surging again, car sales slipped for a fourth consecutive month and central bankers are vowing to hold rates low. 

Focus on central banks

Meanwhile, the focus will be on central bank speakers, with European Central Bank President Christine Lagarde at 0830 GMT, Bank of England economist Huw Pill at 1200 GMT and Federal Reserve officials Christopher Waller and Richard Clarida at 1545 GMT and 1715 GMT. 

Next week we will see just how hawkish the Reserve Bank of New Zealand is when they decide on their OCR. However, local markets could be setting themselves up for some real disappointment if we “only” get a 25bps hike. This could lead to yet another surge in the greenback and ultimately weigh on gold prices. 

Gold to consolidate?

An ongoing CTA buying program in gold could soon be running out of steam, leaving the yellow metal vulnerable to a deeper consolidation,'' analysts at TD Securities argued.

''After all, while the yellow metal remains an ideal hedge against rising stagflationary winds, the tug-of-war between high inflation prints and market pricing for central bank hikes hasn't definitively concluded.''