Gold Price Forecast: XAU/USD rebounds from weekly lows at $1,911, Fed Powell’s speech eyed

Update: Gold (XAU/USD) has witnessed modest selling pressure on Tuesday after struggling to surpass $1,940.00 amid an improvement in the risk appetite of the market participants. Investors are shrugging off the fears from the Russia-Ukraine war as the worst-case scenarios have been discounted by investors. Fx domain is showing optimism towards the NATO meeting on Thursday, which is likely to reach a diplomatic solution for Moscow and Kyiv. Although fresh sanctions could be the outcome of the meeting, things have already been priced by investors.

Meanwhile, the US dollar index eases in the late American session despite rising odds of a 50 basis point (bps) interest rate hike by the Federal Reserve (Fed) in May’s monetary policy. Apart from this, investors are focusing on Fed Chair Jerome Powell’s Wednesday speech, which will provide a roadmap of seven rate hikes in 2022. The US Treasury yields are scaling higher on the aggressive hawkish roadmap by the Fed. The benchmark 10-year US Treasury yields has jumped above 2.38% on rising bets of a 50 bps interest rate hike in May.

End of Update

The gold price is suffering a 0.7% blow on the day so far albeit stabilising above the lows made at the start of the US day. XAU/USD is trading at $1,921.48 after falling from $1,938 and meeting a low of $1,910.73. The US dollar fell, correcting a move higher the previous day as comments from US Federal Reserve Chair Jerome Powell faded and a rise in equities markets help boost risk-on sentiment.

Traders are pricing in a 66.1% chance of a 50 basis point hike at the Fed's May meeting, according to CME's FedWatch Tool, up from slightly more than 50% a week ago. However, gold prices remain extremely well-supported despite the explosive price action in rates markets following Chair Powell's comments. As a result, DXY was up for the third straight day and trading near 99 the figure that outs the May 25 2020 high near 99.975 in focus.

The mood, nevertheless, is risk on and the dollar is giving back some ground in afternoon trade on Wall Street. The Dow Jones Industrial Average rose 0.8% with the S&P 500 up by 1.13% and the Nasdaq Composite adding 1.85% while the US yields soar to multi-year highs by putting the possibility of the half-percentage-point rate hikes on the table. Two-year, five-year, 10-year and 30-year Treasury yields all stood at their highest levels since 2019.

''While the Chair's comments were entirely consistent with the messaging at the undeniably hawkish FOMC meeting, Powell additionally noted that the Fed will be driven by actual inflation rather than forecasts. This opens the door to an imminent 50bp hike, as the Fed's ability to tame inflation in the near-term is extremely limited,'' analysts at TD Securities explained.

Fed behind the curve

The analysts explained also that, 'in turn, the market is now 80% priced for a 50bp hike in May. In this context, gold prices have remained incredibly resilient. This could potentially highlight a growing cohort of participants interpreting the Fed's hiking path as being behind the curve on inflation, as the Fed moves too slowly and cautiously to tame inflation.''

Finally, the analysts argued that ''while CTAs were lent a lifeline to trend followers amid ongoing negotiations between Russia and Ukraine, the margin of safety is narrowing once more.''

''This would raise risks that safe-haven buyers could offload length in a vacuum concurrently with massive CTA liquidations, but Shanghai traders have seemingly ended a period of liquidations and have meaningfully added to their gold in the recent trading session.''

Gold technical analysis

The price is trapped between daily support and resistance although there is a bias to the downside while below the counter trendline. The correction of the latest daily bearish impulse has met a 38.2% ratio already which is an additional bearish factor as sellers move in at a discount. There are prospects of a firmer test of the support in the $1,880 for the days ahead:

The hourly chart is also offering a bearish bias the price moves in and stalls at resistance as illustrated above.