Gold Price Forecast: XAU/USD ends week in the $1,990s after mixed US data, forms bull flag

• Gold price is consolidating after mixed macroeconomic data out of the US.
• US Dollar has risen, weighing on XAU/USD despite lower yields supporting Gold. 
• Central banks to increase their Gold reserves due to geopolitical concerns, says report.

XAU/USD price is consolidating in a range in the $1,990s after stalling in its intraday rally. Pressure from a strengthening US Dollar capped gains despite yields falling due to renewed global financial crisis fears. A bull flag is forming, which suggests the precious metal will rise to substantially higher prices if it activates. Key US Durable Goods Orders and PMI data came out mixed failing to give traders a clear steer on the metal’s next move.  

US Dollar rebounds, putting pressure on Gold

The Dollar Index (DXY) has recovered from new monthly lows set on Thursday in the 101.90s, when it formed a bullish hammer candlestick on the daily chart, suggestive of a reversal after March’s sharp decline. The strong bullish confirmation so far displayed on Friday has started to become a negative factor for XAU/USD.

Data releases out of the US failed to impact either the US Dollar or the Gold price substantially. Durable Goods Orders recovered from the -5.0% print of the previous month to come in at a better -1.0% in February, but not as good as the 0.6% forecast. Both Durable Goods ex Defense and ex Transport also failed to meet expctations, coming in at -0.5% and 0.0% respectively. Capital goods orders, meanwhile, was the one bright spot, beating expectations of 0.0% to come in at 0.2%. 

US Manufacturing and Services PMI both beat consensus estimates by over two points, coming in at 49.3 and 53.8 respectively – helping undo the damage caused by the underwhelming Durable Goods data.

Comments from the Federal Reserve’s James Bullard played down risks to the banking sector from too high rates and focused on how the Federal Reserve could now concentrate on bringing down inflation to target instead of worrying about further bank runs. 

US Treasury yields have stabilized after declining sharply earlier as fears resurfaced concerning the stability of Europe's banking sector. European banking stocks suffered heavy losses, with Deutsche Bank and Commerzbank shares falling more than 10% following a spike in credit default swaps. The decline in yields had provided support to the non-yielding Gold price, since lower yields are reflective of lower interest rates which makes non-yielding Gold more attarctive to investors. 

The support to the Gold price provided by lower yields may not continue for long, however, according to a report by analysts at Commerzbank. They think market expectations for Federal Reserve policy are too dovish in expecting the central bank to cut rates this year. 

“Currently the market expects key rates in the US to be lowered before year’s end, which has recently lent buoyancy to the Gold price again. However, we believe that the market will be forced to correct its expectation of a rapid interest rate turnaround again. This is likely to put XAU/USD back under pressure,” said Commerzbank in its note.

“The fact that the price level has repercussions for physical demand should not be ignored: Swiss Gold exports indicate that demand for Gold in China and India, in February at least, was considerably higher because prices were lower then. China’s Gold imports from Hong Kong should likewise turn out to have been correspondingly robust.” Added the bank.

Central banks diversify into Gold

A report from French bank Société Générale, argues central banks in parts of the world not aligned to the West are ‘de-Dollarising’ due to geopolitical polarization, and diversifying into Gold instead. 

“The longer the Russia-Ukraine conflict endures, the faster countries not aligned with the West will be willing to isolate themselves from the USD. This will encourage central banks to continue their strong Gold purchases,” says the report. 

“The central banks of non-aligned countries should continue to de-Dollarise their portfolios and keep buying Gold (6% of our allocation, unchanged) which, at a later stage, will be backed by lower real yields,” Soc Gen adds.

Gold gently pulls back after breaking above key $2,000 level

XAU/USD trades at $1,993 at the time of writing. It is in an uptrend on a medium and short-term basis, so bullish bets are favored. On Thursday it breached above the key $2,000 psychological mark but overnight it has undergone a gentle pullback. 

The pair may be in the process of forming a bull flag pattern on the 4-hour chart shown below, consisting of a flagpole that began at the March 22 lows and the flag itself composed of the correction that occured between March 23-24 and is still underway. If Gold price breaks back above the $2,003 highs of the flagpole, it will confirm and activate the pattern, leading to a probable run up that is an equal distance to the pole. In this case that will suggest a target at $2,050. A more conservative target would be at the 61.8% Fibonacci extension of the pole, at $2,023.

Gold price: 4-hour Chart.

The Relative Strength Index (RSI) momentum indicator is supporting the current recovery climate and rising more or less in line with price, showing no bearish divergence. 

The next resistance cap lies at Monday’s $2,009 highs where a confluence of technical levels presents a tough ceiling. A decisive break and close above $2,010 would be the breakthrough that is really necessary to invigorate bulls to continue the uptrend to new heights.