Gold Price Forecast: XAU/USD inks Bullish Pennant as yields drag ahead of Eurozone, United States inflation

Gold price (XAU/USD) grinds higher within a two-week-old bullish chart pattern, making rounds to $1,980 during Friday’s Asian session. In doing so, the XAU/USD reverses the previous weekly loss ahead of the key inflation data from the United States and Eurozone. It’s worth noting that the risk-on mood joins the market’s lack of conviction in the Federal Reserve’s (Fed) further rate hikes to propel the Gold price.

Gold price grinds higher as US Dollar softens

Gold price cheers downbeat US Dollar performance to brace for the weekly gains even as the hawkish Federal Reserve (Fed) concerns and mostly upbeat US data challenge the XAU/USD buyers. The reason for the XAU/USD run-up could also be linked to the quarter-end positioning of the US Dollar Index (DXY). That said, the DXY prints a three-week downtrend, so far, as the greenback bears poke 102.15 level.

Easing of bank turmoil fears, sluggish yields add strength to XAU/USD

It should be noted that Federal Reserve Chairman Jerome Powell joins three other Fed Officials to back further rate hikes on Thursday, citing the need to tame the inflation woes. However, mixed US data raise doubts about the Fed policymakers’ hawkish rhetoric and allowed the Gold price to remain firmer, via sluggish yields and banking hopes.

"Inflation remains too high, and recent indicators reinforce my view that there is more work to do to bring inflation down to the 2% target associated with price stability," Federal Reserve Bank of Boston leader Susan Collins said in remarks to a gathering of the National Association for Business Economics per Reuters.

Following her was Minneapolis Fed President Neel Kashkari who said, “We have to bring down inflation.”

On the same line was Richmond Fed President Thomas Barkin saying that if inflation persists, we can react by raising rates further.

Not only the rate concerns but the hopes of a secured banking system also favored the sentiment and exerted downside pressure on the DXY, especially amid mixed US data. That said, final readings of the US fourth quarter (Q4) Gross Domestic Product (GDP), also known as the Real GDP, marked an easy Annualized growth number of 2.6% versus 2.7% previous forecasts. It’s worth noting that the Q4 Personal Consumption Expenditure (PCE) Prices matched 3.7% QoQ forecasts and prior while the Core PCE figure grew to 4.4% QoQ versus 4.3% expected and prior. Moving on, the Weekly Initial Jobless Claims rose to 198K for the week ended on March 25 versus 191K prior and 196K market forecasts.

Furthermore, US Treasury Secretary Janet Yellen said on Thursday, “Banking system is sound, even as it has come under pressure,” which in turn pushed back banking sector woes.

It’s worth observing that the mixed data and risk-on mod fail to underpin the US 10-year Treasury bond yields as they remain pressured near 3.55% while the two-year counterpart grinds higher around 4.12%, targeting the first weekly gain in four.

Hence, sluggish yields join the market’s mixed data and mostly positive sentiment to allow the Gold price to stay firmer. While portraying the mood, Wall Street closed positive for the third consecutive day.

China woes weigh on Gold price

Although the upbeat sentiment and softer US Dollar allow the Gold price to remain firmer, fears emanating from China, one of the world’s biggest Gold consumers, prod the XAU/USD bulls. That said, fears emanating from China, Russia and North Korea allow the Gold buyers to take a breather. China's Taiwan Affairs Office threatened retaliation over Taiwan President Tsai Ing-wen's visit to the US on Wednesday. Additionally, China's Premier Li Qiang recently said that the economic situation in March is even better than in January and February. The policymaker, however, also raised geopolitical tension by opposing trade protectionism and decoupling, which indirectly targets the US.

Inflation is the key as central bankers remain hawkish

While the Gold price portrays the market’s indecision, despite recent action, fears of higher inflation in the United States and Eurozone join the hawkish central bank comments to challenge the XAU/USD buyers. As a result, today’s Eurozone Harmonised Index of Consumer Prices (HICP) for March and the United States Core Personal Consumption Expenditure (PCE) Price Index for February will be closely watched for clear directions.

That said, the EU HICP is expected to ease to 7.1% YoY from 8.5% prior but the Core HICP could print annualized growth of 5.7% versus 5.6% previous readings. With this, the Gold price may witness selling pressure if inflation figures suggest no easing either on the headline or on the core basis.

Also read: Euro area HICP Preview: Peak inflation or base effects? No trade-off for ECB (for now)

On the other hand, the Fed’s preferred inflation gauge, namely the US Core PCE Price Index, is likely to remain unchanged at 4.7% YoY during February. Though, the monthly figure is expected to ease to 0.4%, from 0.6% prior, and can lure the Gold sellers in case of rising past estimations and previous readings.

Also read: US February PCE Inflation Preview: Bad news for the Dollar, good news for the Fed?

Gold price technical analysis

Gold price portrays a Bullish Pennant chart pattern on the daily formation, currently between $1,958 and $1,995. The same suggests the XAU/USD buyer’s preparations for the next leg towards the north.

The upside bias also takes clues from the Moving Average Convergence and Divergence (MACD) indicator’s bullish signal, as well as the firmer Relative Strength Index (RSI) line, placed at 14. It’s worth noting, however, that the RSI line tilts towards the south while the MACD suggests easing bullish bias.

As a result, the Gold buyers need a strong push towards the north to cross the $1,995 hurdle, which in turn favors the metal’s theoretical target surrounding the two-month-old ascending resistance line, around $2,025 by the press time.

On an immediate basis, the 10-DMA level surrounding $1,971 acts as a nearby resistance.

Alternatively, a downside break of $1,958 will defy the bullish chart formation and can quickly direct the Gold sellers toward $1,910, a break of which can push the XAU/USD price to the early February high of near $1,890.

Above all, the Gold price remains firmer unless staying beyond the 100-DMA support of $1,850.

Gold price: Daily chart

Trend: Further upside expected