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Gold Price Forecast: XAU Rally May Reignite on US CPI, Market Volatility Amid Ukraine Risks

Gold Price Forecast: XAU Rally May Reignite on US CPI, Market Volatility Amid Ukraine Risks

Thomas Westwater, Analyst

Gold, XAU/USD, Market Volatility, Ukraine, Inflation, US CPI - Talking Points

  • Gold prices continue to fall after a deep overnight pullback on renewed risk-taking
  • A key US inflation report due out tonight may help spark a rebound in XAU prices
  • XAU/USD bulls look to hold prices at the 9-day EMA after breaking below 2,000

The price of gold fell sharply overnight, and weakness is extending through Thursday’s Asia-Pacific trading session. XAU/USD is down nearly 5% from earlier this week, when bullion prices were trading at the highest levels seen since August 2020. Bulls scored a major victory by clearing the 2,000 level on Tuesday, but a deep pullback in risk aversion has sapped the yellow metal’s luster.

Gold prices have benefited heavily over the past few weeks from escalating geopolitical tensions driven by Russia’s invasion of Ukraine. Those factors sent market volatility roaring higher, benefiting gold’s haven appeal. The subsequent Western sanctions levied on Russia then sent the prices of commodities including oil surging higher. That was a major boon for gold considering its appeal as an inflation hedge.

Oil prices were a primary factor in driving inflation bets higher, but after WTI prices fell by over 10% in the worst trading day since November 2021, those worries eased. That sapped some of gold’s fundamental strength. US breakeven rates – the spread between nominal and real Treasury yields measuring inflation expectations priced into the bond market – fell with oil prices overnight. European inflation expectations also receded, evidenced by a similar pullback in German breakeven rates. Meanwhile, US and Asian equity markets have rallied over the past 24 hours after Ukrainian President Zelensky signaled a renewed willingness to negotiate with Russia.

However, it remains highly uncertain when the fighting in Ukraine will subside. That leaves gold with the potential to resume its recent strength, if current optimism vanishes. Meanwhile, traders are preparing for the United States to report its latest consumer price index (CPI) data for February. Analysts see the US inflation rate rising to 7.9%. That would be the highest year-over-year print since January 1982, when inflation was at 8.4%.

A higher-than-expected print may add to current inflationary woes, which may drive bullion prices higher. Such a move may be amplified by worries that the war in Ukraine might cause the Federal Reserve to hold back a more aggressive response to price growth, in a bid to smooth over the impact any broad-based economic instability linked to the crisis. That said, the most potent near-term XAU drivers will likely rely on market volatility and inflation expectations, particularly in the United States and Europe.

XAU/USD Technical Forecast

After breaking below the 2000 psychological level, bulls may try to find support at the rising 9-day Exponential Moving Average (EMA). A break lower would put 1900 back into focus, a level breached just a few weeks ago. Alternatively, piercing back above 2000 could renew a push up to target the 2022 high at 2070.42. The Relative Strength Index (RSI) fell from overbought conditions while MACD appears to be weakening.

XAU/USD Daily Chart

xau tech chart

Chart created with TradingView

--- Written by Thomas Westwater, Analyst for DailyFX.com

To contact Thomas, use the comments section below or @FxWestwater on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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