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Gold Price Forecast: XAU/USD languishes near YTD low amid Fed rate hike jitters

  • Gold price drops to its lowest level since January amid sustained US Dollar buying.
  • Bets for additional rate hikes by the Federal Reserve continue to underpin the buck.
  • The fundamental/technical setup supports prospects a slide below the $1,800 mark.

Gold price comes under some renewed selling pressure on Friday and drops to a fresh YTD low during the first half of the European session. The XAU/USD is currently trading around the $1,824 region, down over 1% for the day, and seems vulnerable to prolong the recent downward trajectory witnessed over the past two weeks or so.

Bets for more aggressive Federal Reserve weigh on Gold price

Growing acceptance that the Federal Reserve (Fed) will stick to its hawkish stance and that rates are going to remain higher for longer continue to drive flows away from the non-yielding Gold price. In fact, the markets are now pricing in at least a 25 bps lift-off at each of the next two Federal Open Market Committee (FOMC) meetings in March and May. The bets were lifted by the US Consumer Price Index (CPI) data on Tuesday, which showed that inflation remained stubbornly high in January.

Higher inflation and hawkish Fed officials reinforce expectations

Adding to this, the US Producer Price Index (PPI) too surprised to the upside on Thursday and rose by 0.7% in January. On an annualized basis, the PPI decelerated from 6.5% in December to 6.0%, though was above market expectations. Moreover, the incoming positive US economic data pointed to an economy that remains resilient despite rising borrowing costs. Furthermore, two Fed officials raised the prospect of a 50 bps hike in March, which, in turn, continues to exert pressure on Gold price.

St. Louis Fed President James Bullard said that the central bank could return to raising interest rates at a sharper pace. Separately, Cleveland Fed President Loretta Mester said that interest rates will likely rise above 5% and that the central bank should have hiked rates by more than 25 bps at the February meeting. This, in turn, pushes the yield on the benchmark 10-year US government bond to its highest level since late December and provides a strong boost to the US Dollar (USD) whilst weighing on non-yielding Gold.

Stronger US Dollar exerts additional pressure on Gold price

The USD Index, which tracks the Greenback against a basket of currencies, climbs to a fresh six-week high and is seen as another factor weighing on the US Dollar-denominated Gold price.

The risk-off mood - amid worries about economic headwinds stemming from rapidly rising borrowing costs - lends some support to the safe-haven precious metal and helps limit losses.

Nevertheless, the XAU/USD remains on track to register heavy losses for the second week in the previous three.

Gold price technical outlook

From a technical perspective, this week's breakdown below the 50-day Simple Moving Average (SMA) was seen as a fresh trigger for bearish traders. The subsequent fall supports prospects for a further near-term depreciating move. Hence, some follow-through weakness towards the $1,800 mark, en route to the 100-day SMA, currently around the $1,783 region, looks like a distinct possibility.

On the flip side, the $1,835-$1,836 area seems to act as an immediate hurdle ahead of the $1,850 level and the 50-day SMA support breakpoint, around the $1,861 region.

This is followed by resistance near the $1,875 area, above which a bout of a short-covering could provide an additional lift to the Gold price, though is more likely to remain capped ahead of the $1,900 round-figure mark.

Key levels to watch

XAU/USD

Overview
Today last price1824.41
Today Daily Change-12.23
Today Daily Change %-0.67
Today daily open1836.64
 
Trends
Daily SMA201895.26
Daily SMA501861.04
Daily SMA1001784.68
Daily SMA2001775.9
 
Levels
Previous Daily High1845.34
Previous Daily Low1827.61
Previous Weekly High1890.27
Previous Weekly Low1852.84
Previous Monthly High1949.27
Previous Monthly Low1823.76
Daily Fibonacci 38.2%1834.38
Daily Fibonacci 61.8%1838.57
Daily Pivot Point S11827.72
Daily Pivot Point S21818.8
Daily Pivot Point S31809.99
Daily Pivot Point R11845.45
Daily Pivot Point R21854.26
Daily Pivot Point R31863.18

Author

Haresh Menghani

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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