Gold Forecast: Disappointing US CPI to revive XAU/USD’s bullish momentum
FXStreet News

Gold Forecast: Disappointing US CPI to revive XAU/USD’s bullish momentum

  • Gold bears are  testing the commitments of the bulls.  
  • Gold Weekly Forecast: XAU/USD could target 200-day SMA
  • $1,800 is in focus as a 61.8% Fibo on the downside.  


Commodity prices hit all-time highs – What’s next? [Video]

Update:  Gold prices lose a part of the previous day gains, backed by the emergence of constructive bids against the US dollar. The rising Middle-East escalation and inflationary anxiety spooked the market participants. US Treasury yields remain elevated at 1.62% ahead of the US Consumer Price Index (CPI) data.  

US inflation expectations rose to 3.4% in April, the highest in a decade amid economic reopening from covid related lockdowns. This might lead to higher  prices and economic overheating, eventually, the Fed would end the ultra-loose monetary policy to curb the inflationary pressure.

Update: Gold price justifies the risk-off mood, down 0.26% intraday around $1,832, to register the first daily decline in six days during early Wednesday. Market sentiment seems to have soured amid the pre-US Consumer Price Index (CPI) caution. Also spoiling probing the bulls could be the geopolitical tensions in the Middle East and mixed vaccine updates, which in turn weighs on the gold prices.

Although risk catalysts and a busy economic calendar during the European session can direct immediate moves of the bullion, the gold traders will be more interested in the softer US CPI figures for April, expected 3.6% YoY versus 2.6% prior.

Read:  US Consumer Price Index April Preview: The two base effects of inflation

At the time of writing,  gold price is flat in Asia following a mixed day overnight. The price is consolidated at $1,836 following a choppy trading day and steep correction where the dip was an attractive discount for the bulls. Asia’s sharp equity declines at the start of the week were mirrored  as the Europeans came online which transpired into a sour day on Wall Street as well.  The US dollar was mixed against the G10 and gold took advantage of bouts of weakness.    

On the eve of the US Consumer Price Index, investors bet that rising inflation could erode the greenback away and the US dollar hit a 2-1/2-month low early in the New York session. However, the greenback then firmed around those levels on Tuesday afternoon.  Overall,  markets believe the Federal Reserve will keep its commitment to low rates and hefty asset purchases which is a supportive factor for the precious metal in the longer run.  

Gold price forecast could be affected by the  US bond markets situation, the inflationary concerns amidst the commodities boom pushed yields higher. The 2-year government bond yields added  1bp from 0.15% to 0.16%, and the 10-year government bond yields rose 3bps from 1.60% to 1.63%. As for the key data ahead, the market expects that April CPI will rise 0.2%, ”which will push the year-ended pace to 3.6% on base effects,” analysts at Westpac explained.  

Elsewhere, the April monthly budget statement deficit is on tap and we will also hear from the Federal reserve’s Vice Chair Clarida who will talk on the US economic outlook.

Gold forecast technical analysis

Meanwhile, as per the prior analysis, the price did  indeed correct to the 38.2% Fibonacci level as follows:

Prior analysis, daily chart

As pointed out, the current bullish leg is somewhat overextended and the daily chart illustrates just that.  

A correction to at least a 38.2% Fibo that meets structure on the lower time frames, such as the 4-hour chart, would have a confluence with the 8 EMA.  

If bulls step in there, then it could be the making for an onwards daily bullish market to test deeper into the monthly supply zone, with 1,850 the first port of call.

Live market, daily chart  

As illustrated, there was a perfect touch of the level.

However, the bears may not have thrown in the towel just yet and the lower time frames can be monitored for bearish structure.

Gold 4-hour chart

The price of gold  is in a bullish environment on the 4-hour time frame, so a continuation to the upside is a more likely scenario at this juncture.

That being said, if the support breaks, the 8 and 20 EMA bearish crossover coupled with a restest of the old support, that would be expected to then act as resistance, will tip the balance in favour of the bears.  

Bears could target a 61.8% Fibonacci retracement of the daily impulse that meets the prior highs and the psychological 1,800s.

FX Street

FX Street

FXStreet is the leading independent portal dedicated to the Foreign Exchange (Forex) market. It was launched in 2000 and the portal has always been proud of their unyielding commitment to provide objective and unbiased information, to enable their users to take better and more confident decisions.