Gold Price Forecast: XAU/USD Tries to Find Support Amidst Bearish Wave

GOLD FORECAST

• Positivity around Russia/Ukraine negotiations weigh on gold.
• Fed rate hike sees Treasury yields soar.
• $1900 in focus.

XAU/USD FUNDAMENTAL BACKDROP

Spot gold prices are tracking two-week lows after Russia/Ukraine talks seem to be gaining traction after comments from President Zelensky – diminishing bullions safe-haven appeal. Crude oil has been weighing on the yellow metal since last week after a fierce sell-off playing into the traditionally positive correlation between the two assets. Lower crude oil prices are seen to stifle inflationary pressures thus weakening gold’s inflation hedge attribute.

The highlight for today is the upcoming Federal Reserve rate decision which currently has money markets anticipating a 25bps hike with an 87% probability as seen in the table below. This is somewhat less than what we have seen earlier this week which may be opening up the slightest chance of a 50bps surprise.

Source: Refinitiv

While I do not think this will come to fruition, I will be focusing on the post-announcement press conference for any hawkish or dovish comments around quantitative tightening, inflation, GDP forecasts and rate path trajectory for guidance.

US Treasury yields (10-year) have hit fresh yearly highs last seen in May 2019 with similar moves in the short-end 2-year yield. This has had a positive influence on real yields, adding to negative pressure on gold as the opportunity cost of holding the non-interest bearing metal increases. Higher yields have buoyed the dollar leaving gold exposed on the downside should this continue.

US 10-YEAR TREASURY YIELD

Source: Refinitiv

ECONOMIC CALENDAR

Source: DailyFX Economic Calendar

TECHNICAL ANALYSIS

GOLD PRICE DAILY CHART

Chart prepared by Warren Venketas, IG

The threatening blow-out top (steepening uptrend) has developed and resulted in the sharp decline in spot gold price action. There were many suggestions of overextended positioning particularly via the RSI, as mentioned in my previous analysis. The $1900 psychological level provides the next key area of confluence and coincides with the 50-day EMA (blue).

With prices almost solely trading above all EMA levels for most of 2022, a break below the 20-day EMA earlier this week may point to a shift in momentum. As has been the case of recent, geopolitics will be the major influence on market movements but should tensions de-escalate, I foresee a correction lower as Fed tightening looks to move forward.

Resistance levels:

• 2000.00
• 1959.45
• 20-day EMA (purple)

Support levels:

• 1900.00/50-day EMA (blue)

BEARISH IG CLIENT SENTIMENT

IGCS shows retail traders are currently distinctly LONG on gold, with 74% of traders currently holding long positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment resulting in a bearish bias.

Contact and follow Warren on Twitter: @WVenketas