Gold Price Forecast: Will Powell help XAU/USD confirm a Bull Flag confirmation?
- Gold price trades listlessly near $2,160 early Wednesday, eyeing the key Fed decision.
- US Dollar stalls its uptrend amid pre-Fed caution and a modest retreat in US Treasury yields.
- Gold price awaits a Bull Flag confirmation on the daily chart, as RSI stays bullish.
Gold price is replicating the move seen during Tuesday’s Asian trading early Wednesday, as buyers hold their breath after the previous late rebound. The US Dollar (USD) is consolidating the ongoing uptrend even as the US Treasury bond yields see a modest retreat from multi-day highs.
All eyes remain on the Fed decision and Jerome Powell’s presser
It’s a calm before the US Federal Reserve (Fed) interest rate decision storm, as Gold traders turn on the sidelines, refraining from placing any fresh positional bets on the bright metal. Markets are turning caution, as tensions mount in the run-up to the Fed showdown, with markets eagerly awaiting fresh hints on the timing and scope of the Fed’s first interest cut this year.
Markets are currently pricing in just about 60% of a June Fed rate cut. While the December Fed’s Dot Plot chart projects three rate cuts, it remains to be seen what the central bank’s outlook on interest rate cuts offers. Also, of note, will be Fed Chair Jerome Powell’s comments at the post-policy meeting press conference for fresh impact on the value of the US Dollar and the non-interest-bearing Gold price.
On Tuesday, Gold price snapped its early rebound and fell as low as $2,148 before recovering losses to settle near $2,158. The downtick in the Gold price was sponsored by a renewed US Dollar buying interest.
The USD/JPY pair rallied hard, following the expected interest rate hike by the Bank of Japan (BoJ), driving the US Dollar higher while weighing on the Gold price. However, some modest weakness in the US Treasury bond yields and a risk-on rally on Wall Street indices capped the US Dollar upside, allowing Gold price to stage a decent comeback.
Gold price technical analysis: Daily chart
The short-term technical outlook for Gold price remains more or less the same, with a Bull Flag confirmation awaited on a daily candlestick closing above the falling trendline resistance at $2,165.
Acceptance above the latter will trigger a fresh upswing toward the $2,190 level, above which the record high at $2,195 will be retested. The next relevant bullish targets are seen at the $2,200 threshold and the $2,250 psychological level.
The 14-day Relative Strength Index (RSI) is sitting just beneath the overbought region, near 68.00, suggesting that a fresh Gold price upswing could be in the offing.
If Gold sellers fight back control, immediate support is seen at Monday’s low of $2,146, below which the falling trendline support at $2,132 will come to buyers’ rescue.
A sustained move below that level will put the March 6 low of $2,125 to the test. Further down, the key round level of $2,110 will challenge bullish commitments.
(This story was corrected on March 20 at 06.39 GMT to say that "The USD/JPY pair rallied hard, following the expected interest rate hike by the Bank of Japan (BoJ), driving the US Dollar higher while weighing on the Gold price, not the US Dollar.)
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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Author
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.
