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

GOLD ANALYSIS & TALKING POINTS

• US CPI and FOMC minutes keenly anticipated tomorrow.
• Fed’s Harker and Kashkari scheduled to speak later today.
• Bearish divergence vs bull pennant continuation?

XAU/USD FUNDAMENTAL BACKDROP

Gold prices are hovering around the $2000 mark after a pullback from fresh yearly highs last week. This comes after strong Non-Farm Payroll (NFP) data bolstered hawkish Fed bets now pricing in a peak rate above 5% and a 73.6% probability of a 25bps interest rate hike in the May meeting (see table below).

FEDERAL RESERVE INTEREST RATE PROBABILITIES

Source: Refinitiv

While the focus for the week will stem from tomorrow’s US CPI print and FOMC minutes and their impact on the tight labor market figures. Today brings lesser volatility via the NFIB business optimism index as well as Fed speak (see economic calendar below). The NFIB report beat estimates giving the USD a boost ahead of the US trading session with bullion pulling back slightly. Later today, Fed speakers will dominate the calendar with attention on their preference to aggressive or easing monetary policy.

ECONOMIC CALENDAR

Source: DailyFX economic calendar

Real yields have plateaued somewhat since last week’s marginal recovery but may find some directional bias after US CPI. Should CPI push higher and support monetary policy tightening after strong NFP figures, real yields may turn higher thus increasing the opportunity cost of holding gold, making the yellow metal less desirable.

U.S. 10-YEAR TIPS – REAL INTEREST RATE

Source: Refinitiv

TECHNICAL ANALYSIS

XAU/USD DAILY CHART

Chart prepared by Warren Venketas, IG

As mentioned in my analysis last week, bearish divergence has since unfolded but may more in store depending on the upcoming US inflation read as mentioned above. Current price action on the daily spot gold chart shows bulls unable to hold above the $2000.00 psychological handle while mean reversion towards the 200-day MA (blue) could be a longer-term outcome.

Any mentioned regarding rate cuts this year from the forthcoming FOMC minutes could consequently result in gold upside, extending the recent bull pennant (black) breakout trajectory.

Resistance levels:

• 2050.00 – 2080.00
• 2009.75

Support levels:

IG CLIENT SENTIMENT: BEARISH

IGCS shows retail traders are currently distinctly LONG on gold, with 58% of traders currently holding long positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment resulting in a short-term downside bias.

Contact and followWarrenon Twitter:@WVenketas