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Gold Price Forecast: XAUUSD established above $1,950, Fed’s Powell eyed

  • The Gold Price fall was capped by falling US Treasury yields amidst a risk-on market mood.
  • US Treasury yields dropped from three-year highs and undermined the greenback.
  • Bulls start to engage at the start of a demand area, eyes on daily M-formation.

Gold (XAU/USD) has witnessed a modest rebound after hitting a low of $1,939.40 on Wednesday backed by weakness in the US dollar index (DXY). The gold prices have bounced back from their previous consolidation zone, which took place in a narrow range of $1,915.08-1,944.64. The DXY has plunged after failing to sustain above the resistance of 101.00 and has eased an almost 0.80% from its recent high of 101.04, recorded on Wednesday.

It would be worth claiming that the market participants have discounted the worst-case scenarios, which could be dictated in the monetary policy announcement by the Federal Reserve (Fed) in May. Investors have priced in the scenarios of a jumbo rate hike, balance sheet reduction, and aggressive hawkish guidance for the rest of the year, which has brought a significant fall in the yellow metal. Meanwhile, the 10-year US Treasury yields have slipped to 2.83% after failing to tap the psychological resistance of 3%. Going forward, the speech from Fed chair Jerome Powell will remain in focus, which is due on Thursday. The market participants will find some potential cues into the likely monetary policy action in May.

Also Read: Gold Price Forecast: XAUUSD still see compelling reasons to hold on to the bright metal – TDS

Gold Price is higher in the US session, trading at $1,955 and near the highs of the day after travelling from a low of $1,939.40. The US dollar has come under pressure which has enabled the gold price to stabilise in what can be considered to be the start of a demand area on the daily chart. DXY is down today by some 0.67% following four straight down days. The low has been 100.220 so far, some way off the new cycle high near 101.035 printed yesterday. 

US yields are moving into a corrective phase across the rates markets. The US 10-year yield traded at a new cycle high at 2.981% today before reversing lower to 2.819% currently. However, analysts at Brown Brothers Harriman ''believe it remains on track to test the October 2018 high near 3.26%,'' analysts at Brown Brothers Harriman said.

 ''As a result, the real 10-year yield has fallen to -0.07% today from zero yesterday, the highest since March 2020.'' However, they expect real yields to move back into positive territory. ''The broad-based drop in US yields has taken a toll on the dollar today but these are seen as corrective moves before we get another leg higher,'' the analysts argued. 

The Fed releases its Beige Book report for the upcoming May 3-4 FOMC meeting in being released at the time of writing and would be expected to underpin the notion of a hawkish Federal Reserve since the previous Beige Book report for March 15-16 FOMC meeting, data have continued to run hot.  This report will likely highlight inflation readings that have picked up further, job growth that remains robust, and wage pressures that continue to pick up. 

Fed speakers, mix signals 

In the meantime, Fed speaking continued on Wednesday. Charles Evans, the President of the Fed in Chicago, who has been 3 for 3, hitting newswires in the week, commented that inflation would not fall back to 2.0% in 2023. Those comments added to Tuesday’s when he pushed back a 75 bps increase proposed by the St. Louis Fed President Bullard.

However, overall, some Fed officials are sounding a bit more cautious, the analysts at BBH argued. For instance, they cited comments from Evans who also noted there is considerable uncertainty over how inflation will play out and so this argues for a more cautious monetary policy path this year.  The analysts also explained that Fed's Raphael Bostic said it is important to get to a neutral Fed Funds rate "in an expeditious way" and added that neutral is likely between 2.0-2.5%. ''Bostic added that he would like the Fed Funds rate around 1.75% by year-end. While not exactly dovish, these two make for a more cautious stance that stands in stark contrast with Bullard.''

Looking ahead, Fed chair Powell takes part in an IMF panel tomorrow with ECB President Lagarde on the global economy.  This will be the last we here from him until his post-decision press conference on the afternoon of May 4.  It is worth noting also that at midnight Friday, the media blackout ahead of the FOMC meeting takes effect and there will be no Fed speakers the rate decision has been announced. 

Eye on Ukraine crisis

Aside from this, headlines around the Ukraine-Russia conflict continue flowing. Talks between Ukraine-Russia appear at a dead end, as the latter ramped up its offensive in east Ukraine, while NATO countries, led by the US, continue sending weaponry to Ukraine.

Gold Price Forecast (XAUUSD): Technical outlook

Gold Price (XAUUSD) found support in an old resistance area as per the following daily chart:

Also, noteworthy, the M-formation, which is a reversion pattern, has presented itself as a target for the bulls. The neckline meets the 38.2% and 50% ratios where resistance would be expected. 

XAU/USD H1 chart

For the M-formation to play out, the bulls will note the meanwhile resistance on the hourly chart near $1,960. However, above here, the bulls will on track for the neckline near $1,973. Beyond there, a break of the April 18 highs near $2,000 will be on the cards. 

Author

Dhwani Mehta

Dhwani Mehta

FXStreet

Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.

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