Gold Price Forecast: XAU/USD bulls move in at a key support area on the FOMC minutes and a softer US dollar

At $1,851, the price of gold is down around 0.8% on the day as the US dollar breaks higher from a two-day losing streak on Wednesday. The yellow metal has slid from a low of $1,841.60 to a high of $1,868.11 so far on the day but has found some solace on the basis that there has been no mention of larger rate increases within the Federal Open Market Committee minutes of the May meeting.

The minutes that came out at 2 p.m. EDT (1800 GMT) failed to support the US dollar any higher on the day so far. The greenback slid on the release within a 102.449 and 101.728 range for the day. In his most hawkish of questions and answers, the US Federal Reserve Chair Jerome Powell told the Wall Street Journal that he was adamant that the central bank would continue hiking rates until there is clear and convincing evidence that inflation is under control. 

"In particular, Chair Powell has reiterated on several occasions the Fed's guidance of implementing additional 50bp rate hikes at the June and July FOMC meetings, and we expect the May meeting minutes to provide further colour about those plans," strategists from TD Securities explained. 

However, the minutes lacked any mention of a faster pace of larger rate increases which has given risk appetite a boost in the late New York session. All three major US stock indexes fluctuated earlier in the session amid concerns about a cooling economy, but in recent trade, the benchmarks are tracking higher on the day to session highs. The S&P 500 is now over 1% in the green while the Dow is up around 0.7% with the NASDAQ printing 1.41% higher. US 10-year Treasury yields, which hit 3-1/2-year highs earlier in May, have since fallen back towards the six-week lows printed earlier on Wednesday after data showed new orders for US-made capital goods rose less than expected in April.

The dollar was already under pressure prior to Wednesday's recovery due to the European Central Bank chief Christine Lagarde flagging an end to negative interest rates in the eurozone in the third quarter. Her comments have implied an increase of at least 50 basis points in the deposit rate and fueled speculation of bigger hikes this summer. This too is giving the gold bugs some relief. 

Analysts at TD Securities, however, warn that ''the recovery in the yellow metal remains on shaky ground as Fed Chair Powell signalled a willingness to sacrifice some economic growth in an effort to tame inflation, suggesting the Fed is comfortable with more pain before taking the foot off the brake, which should ultimately still weigh on precious metals.''

''In the midst of the latest bounce, the number of traders long the yellow metal remains elevated, while the breadth of traders short has just started to rise from near-record lows, highlighting there is still plenty of positioning to be unwound should the Fed remain steadfastly hawkish.''

Gold technical analysis

As per the prior analysis, Gold Price Forecast: XAU/USD bulls stay on top, but bears lurking at daily resistance, the price has moved in towards the daily support as follows:

Gold daily chart, prior analysis

It was stated that ''gold is trapped between daily support and resistance still but is making headway. However, the W-formation is a reversion pattern that could leave the price trapped in the sideways channel for the days ahead. If, however, there is a break one way or the other, of the current support and resistance, then the price imbalances to $1,883 on the upside and $1,780 to the downside could be mitigated.''

Gold live market

As illustrated, the price has moved in on the support in a 38.2% Fibonacci retracement. At this juncture, the lower time frames can be monitored for signs of a deceleration of the bearish correction:

As per the hourly chart, the price is breaking out of the correction's dynamic resistance and a restest of the W-formation's neckline could result in the bulls claiming a discount for a move higher towards the prior highs near $1,865 for the sessions ahead.