Gold Price Forecast: XAU/USD to see an additional major rally on a break above $1,877 – Credit Suisse

Update: Gold looks to be finding better support in its broader sideways range. But strategists at Credit Suisse notes that the yellow metal needs to break above $1,877 to see a sustained leg higher.

Break under $1,780 to ease upward bias

“Gold remains well supported in the converging range of the past year but needs to clear $1,854 to suggest the downtrend from early 2021 break and above $1,877 to suggest we are seeing a more sustainable move higher, for a test of $1,917 next.” 

“Below $1,780 is needed to ease the immediate upward bias for a fall back to $1,759/54, but with a break below here needed to clear the way for a retest of key price and retracement support from the lower end of the range at $1,691/76.”

“Only below $1,691/76 though would see a major top established to mark an important change of trend lower.”

Update: Gold now seems to have entered a bullish consolidation phase and was seen oscillating in a narrow trading band, around the $1,834 region heading into the European session. The standoff between Russia and the West over Ukraine continued acting as a tailwind for the safe-haven XAU/USD. Apart from this, concerns about persistently high inflationary pressures further benefitted the commodity's status as a hedge against inflation. That said, rising bets for a 50 bps Fed rate hike kept a lid on any meaningful upside for the non-yielding yellow metal, at least for the time being.

The markets seem convinced that the Fed would adopt a more aggressive policy response to contain stubbornly high inflation. This was reinforced by the recent runup in the US Treasury bond yields, which continued lending some support to the US dollar. Hence, the market focus will remain on the release of the US CPI report, due later during the early North American session. The data could determine the Fed's near-term policy outlook and influence the greenback. This, in turn, should provide a fresh directional impetus to the dollar-denominated gold.

Previous update: Gold (XAU/USD) buyers brace for the key day around a two-week high, picking up bids to $1,835 during Thursday’s Asian session.

The yellow metal recently cheered the downbeat US dollar and the market’s rush to traditional risk-safety amid inflation fears. However, the multi-day high Treasury yields challenge gold buyers ahead of crucial US Consumer Price Index (CPI) data for January, expected 7.3% YoY versus 7.0% prior.

Read: US Inflation Preview: Core CPI above 6% could spark next dollar rally

That said, the US Dollar Index (DXY) prints mild weekly gains around 95.55 while the US 10-year Treasury yields pause the previous day’s pullback from the highest levels since July 2019, up one basis point (bp) near 1.93%, by the press time.

Also portraying the cautious sentiment in the market, as well as challenging gold buyers, is the steady S&P 500 Futures despite Wall Street’s upbeat performance on tech-rally and strong earnings, as well as mixed moves of the Asia-Pacific stocks.

Among the key catalysts, the latest comments from the White House and the US Federal Reserve (Fed) official take the front seat.

The White House (WH) conveyed expectations of a higher YoY inflation figure while also saying, “Its irrelevant month on month number will continue trending lower the rest of the year.” Following that, WH Economic Adviser Brian Deese said that he sees reason to think that factors boosting inflation will moderate over time.

On the other hand, Cleveland Fed President Loretta Mester supported the March rate hike while Atlanta Federal Reserve President Raphael Bostic told CNBC on Wednesday he is hopeful that they will start to see a decline in inflation. Fed’s Bostic also said, "Leaning toward the need for a fourth interest rate increase in 2022."

It should be noted, however, that the sluggish prints of the US inflation expectations, as measured by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, challenge the Fed hawks and keep gold buyers hopeful.

Elsewhere, the recent escalation in the US-China trade tussles and fears over Russia’s invasion of Ukraine seems to take a back seat for now as markets await US CPI figures for fresh impulse.

Technical analysis

Gold advances inside a three-month-old symmetrical triangle, piercing a six-week-long horizontal area of late.

Adding to the upside bias is the metal’s successful trading above 200-DMA and a five-week-old horizontal area amid recently firmer MACD signals and RSI.

That said, the 23.6% Fibonacci retracement (Fibo.) of September-November upside, near $1,841, acts as an intermediate halt during the run-up to the stated triangle’s resistance line around $1,850.

In a case where gold buyers manage to cross the $1,850 hurdle, January’s top near $1,853 will test the upside momentum targeting a late 2021 peak of $1,877.

On the flip side, pullback moves remain elusive until staying beyond $1,830, a break of which will direct gold sellers towards the 200-DMA level near $1,806.

Following that, 50% Fibo. level and the triangle’s support, respectively around $1,800 and $1,787, will be crucial for gold bears to retake control.

Gold: Daily chart

Trend: Further upside expected