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Gold Price Forecast: XAU/USD Sustained by Real Yields and Safe-Haven Demand

Gold Price Forecast: XAU/USD Sustained by Real Yields and Safe-Haven Demand

Warren Venketas, Analyst

GOLD OUTLOOK

  • Surging dollar and lower oil prices keeping a lid on gold upside.
  • Fall in real yields help prop up gold bids.
  • IG Client Sentiment: Mixed
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XAU/USD FUNDAMENTAL BACKDROP

Yesterday’s Federal Open Market Committee (FOMC) minutes propelled the U.S. dollar higher while spot gold continues to lack directional conviction. A robust labor market and solid growth data gives a string foundation for the Fed to be aggressive in its fight with inflationary pressures. Details around balance sheet reduction bid the dollar higher and looks to be the trend short-term at a minimum.

A slump in crude oil prices have added to gold’s woes after additional sanctions on Russia hurt supply-side inputs. A saving grace for bullion comes via the safe-haven demand for the yellow metal as hesitation in Ukraine continues.

U.S. real yields (see 10-year below) have added support for gold as they have taken a step lower thus reducing the opportunity cost of holding gold – traditionally an inverse relationship between the price of gold and real yields.

U.S. 10-YEAR REAL YIELD

US 10-year real yields TIPS

Source: Refinitiv

ECONOMIC CALENDAR

With the week unlikely to bring much via macroeconomic data, next week (refer to economic calendar below) could give gold the push it needs to breakout from its current consolidatory pattern. Naturally, focus will shift to U.S. inflation data with a higher print potentially favoring gold upside. As has been the case of recent, geopolitics will persistin influencing gold prices.

US economic calendar

Source: DailyFX Economic Calendar

TECHNICAL ANALYSIS

GOLD PRICE DAILY CHART

XAUUSD daily chart

Chart prepared by Warren Venketas, IG

The narrowing form created by the daily candles above keeps gold prices within the medium-term rectangle pattern (blue). A fundamental catalyst is required to liberate gold from the confines of the rectangle which I do not foresee this week unless unforeseen events from Ukraine sway current market sentiment.

Resistance levels:

  • 2000.00
  • 1966.23
  • 20-day EMA (purple)

Support levels:

  • 50-day EMA (blue)
  • 1900.00

CAUTIOUS IG CLIENT SENTIMENT

IGCS shows retail traders are currently distinctly LONG on gold, with 76% of traders currently holding long positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment however, due to recent changes in long and short positioning a mixed bias is preferred.

Contact and follow Warren on Twitter: @WVenketas

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

DISCLOSURES