Gold Price Forecast: XAU/USD recaptures $1780 amid cautious market mood

Update: Gold price is posting small gains so far this Wednesday, looking to recover ground above the $1780 level. Gold price ignores the rebound in the US dollar across the board and draws support from the weakness in the Treasury yields, as Fed Chair Powell tempered the recent hawkish rhetoric and downplayed inflation worries. The renewed US-Sino tensions over the Taiwan strait and the persisting divide over US President Joe Biden’s infrastructure stimulus keep the bullish undertone intact around gold price. The resurgence of covid cases in Asia also boosts the safe-haven appeal of gold. Looking ahead, gold price will continue to take cues from the broader market sentiment ahead of the US Markit PMIs.

Gold prices were lower into the closing bell on Tuesday but off their lows as the greenback lost ground in the latter part of New York day. 

At the time of writing, XAU/USD is down 0.37% and had travelled between a low of $1,772.39 and $1,790.20. 

Gold prices are consolidating at the bottom of the recent drop from above $1,900 as the US dollar slides in on an area of a support structure identified in the DXY on 15th April in the 91.60s.

DXY has dropped from a high 92.1380 to a low of 91.6450 and failed to find support on comments from the Federal Reserve's chair, Jerome Powell. 

Powell said it is difficult to know how long some of the transitory impacts on inflation will last but thinks we should be through it in a year’s time. 

The US 10-year yield eased over 2bps to 1.4630%.

Fed's Powell speech: Labor demand is remarkably strong

Powell speech: We're prepared to use tools as appropriate

Powell speech: We will respond to shortfalls in unemployment

Numerous Fed speakers dialled back the hawkish theme in comments on Wednesday,

Cleveland Fed President Loretta Mester said that now is not the time to end accommodative policies while New York Fed President John Williams argued that there is still plenty to go until full employment.

 Williams said a rate rise is a “way off” and he expects inflation will fall back to 2.0% next year.

Meanwhile, San Francisco Fed President Mary Daly argued that the conditions for tapering may be met later this year or early next year.

The Fed had surprised the market last week with a hawkish hold which set off forex volatility as traders managed to flows and repositioning as the markets adjusted for a rise in interest rates and end emergency bond-buying sooner than expected.

Analysts at TD Securities explained, ''the Fed's decisively hawkish tone has killed inflation risk premium as it pencilled in two hikes for 2023 — signalling a change in reaction function, which challenges their credibility for average inflation targeting. In any case, the Fed isn't behind the curve by any means, which removes the immediate impetus to buy gold.''

Gold technical analysis

The bulls are set on a 38.2% Fibonacci retracement of the daily bearish impulse that comes in at $1,814 meeting the 13th May support area and the 10-day EMA.

However, the price is back in bearish territory considering it has failed to hold above the prior daily bullish close.

Nevertheless, a surge to the upside resistance would leave a W-formation on the charts that could result in a restest of the current highs while markets await the next catalyst in US jobs data in particular. 

Previous update

Update: Gold (XAU/USD) portrays a subdued performance during Wednesday’s Asian session following the recent inability to keep the bounce off intraday low while retesting $1,778 level. Although the post-Powell risk-on mood favors gold buyers, a lack of major catalysts and wait for monthly PMIs seem to restrict the latest moves. Also acting as the momentum filters is the uncertainty over US President Joe Biden’s infrastructure spending and fears of the Delta Plus variant of the coronavirus (COVID-19).

Fed Chairman Jerome Powell matched expectations of citing employment as the reason to keep easy money policy rolling, others from the clan, namely Cleveland Fed President Loretta Mester and New York Fed President John Williams were also against policy adjustments for now.

Not only the PMIs but Fedspeak and updates over covid, as well as US stimulus, will also be crucial to watch going forward. It should, however, be noted that a sideways grind between 100-day SMA near $1,793 and multiple levels marked since late February, around $1,760, can’t be ruled out.