Gold Price Forecast Hinges on US CPI, XAU/USD Patiently Waits at $2000

Gold analysis and talking points

• The FOMC Meeting Minutes and US Consumer Price Index are expected tomorrow.
• Fed’s Harker and Kashkari are scheduled to speak later today.
• Bearish divergence vs bull pennant continuation?

XAU/USD basic background

Gold prices are hovering around 2000 dollars After pulling back from new yearly highs last week. This comes after strong NFP data supported the Fed’s now hawkish bets on pricing at a peak rate above 5% and a 73.6% probability a 25 bits per second Interest rate hike at the May meeting (see table below).

Federal Reserve interest rate prospects

Source: Refinitiv

While the focus for this week will stem from US CPI data and FOMC meeting minutes and their impact on the narrow labor market numbers. Today brings less volatility through the NFIB Business Optimism Index as well as Fed speech (see economic calendar below). The NFIB report outperformed estimates giving the greenback a boost ahead of the US trading session, with bullion falling slightly. Later today, the Fed speakers will dominate the calendar with attention being paid to their preference for aggressive or dovish monetary policy.

Economic calendar

source: DailyFX Economic Calendar

Real yields have stabilized somewhat since last week’s marginal recovery but may find some directional bias after US CPI. If the CPI pushes higher and supports monetary tightening after the strong NFP numbers, real yields could turn higher increasing the opportunity cost of holding gold, making the yellow metal undesirable.

10 year US tips – real interest rate

Source: Refinitiv

Technical Analysis

XAU/USD daily chart

Chart created by Warren VenkitasI.G

As I mentioned in my analysis last week, a bearish divergence has since unfolded but more may be in store depending on upcoming US inflation as mentioned above. The current price action on the gold daily chart shows that the bulls are unable to hold above $2,000.00 Psychological handle while a mean reversal towards the 200 day moving average (blue) could be a longer term result.

Any mention of interest rate cuts this year from the upcoming FOMC meeting minutes could therefore send gold higher, extending the recent bullish breakout path (black).

resistance levels:

• 2050.00 – 2080.00
• 2009.75

Support levels:

Customer’s IG feeling: smitten

The IGCS shows that retailers are currently differentiated long on gold with 58% of traders who are currently holding long positions (as of this writing). At DailyFX, we usually take a contrarian view of crowd sentiment which results in a short-term bearish bias.

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