Gold Price Forecast: XAU/USD smashed down as the US dollar soars to fresh cycle highs

At $1,819.52, the gold price is down some 2.78% after falling from a high of $1,879 to a low of $1,819.10 as investors moved into the greenback with the fears of the recession taking hold.

The Federal Reserve this week is expected to hike which is pushing bond yields to the highest in more than a decade as the central bank is expected to raise interest rates by at least 50-basis points after inflation rose to a 40-year high of 8.6% in May.

Consequently, US equities were down sharply on Monday, with the S&P 500 on pace for its fourth straight decline. The benchmark index is more than 20% below its record closing high on Jan. 3 and such a drop would confirm the index is in a bear market, according to a commonly used definition.

The DXY index, which compares the greenback to a basket of rival currencies has moved as high as 105.285, the highest level since December 2002 which has seen the euro to 1.0403 the low and the yen 135.20. 

• Investors weigh the probabilities of three Fed scenarios: A 50bps, 75bps or even a 100bps hike

''Until evidence emerges that inflation is peaking and on a sustained downwards track, financial asset prices will remain under pressure,'' analysts at ANZ Bank argued. 

Despite the hunt for safety, gold for August delivery closed down $29.10 to settle at $1,831.80 per ounce.

''While the strong inflation data immediately translated into higher gold prices, buying gold as an inflation hedge is only viable inasmuch as the higher inflation print is disregarded by monetary policy,'' analysts at TD Securities said. 

''The next few Fed hikes are set in stone, which limits the relevance of imminent data releases to the left tail of Fed funds pricing, but the market has aggressively challenged the right tail — bringing 75bp hikes into scope.''

''In turn, the trading bias is still to the downside, but participants are still looking for catalysts to flush out the massive amount of complacent length. We see risks that technical breakdown could be the catalyst,'' the analysts said:

• Firstly, the bar for CTA liquidation is growing thin, as we estimate that a break below $1810/oz would catalyze a substantial selling program from systematic trend followers.
• Secondly, prices have managed to break below the bull-market defining uptrend from 2019, which may catalyze additional liquidations from the complacent bulls at prop-shops.
• Thirdly, a growing valuation gap between gold and real rates might eventually exacerbate the repricing lower in the yellow metal, despite it being attributed to both an undue rise in real rates given quantitative tightening, and to the still-massive complacent length in the yellow metal which has kept the prices elevated.