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Gold price forecast: prices probe support as FOMC minutes, China CPI near

Gold prices stagnant in APAC trading after US dollar strength drives them lower and XAU/USD bears continue to probe the 78.6% Fibonacci retracement level near 1920.

Gold prices are slightly lower in early Asia-Pacific trading, following an overnight drop when a surge in the US dollar caused broad weakness in precious and industrial metals. XAU prices are trading around 1922, a level where prices have found support through the second half of March. The price action over the last few weeks has been largely consolidative, with gold’s fundamental drivers stacked against each other.

On one hand, the ongoing war in Ukraine is providing a tailwind for bullion by keeping the market on edge as the situation evolves. The Western allies continue to roll out sanctions targeting Russia, which has the unfortunate side effect of complicating the global flow of goods and services. That could keep inflation and market volatility elevated, both of which are supportive elements for the yellow metal.

However, higher inflation is stoking an increasingly aggressive response from central banks. The Federal Reserve is set to hike its benchmark rate by 50 basis points (bps) in May, following its 25bps hike in March. Rising rates disadvantage gold, a non-interest-bearing asset. The looming question is whether central banks will be able to get a handle on inflation.

Market-based inflation gauges suggest the answer is yes. The two-year breakeven rate is trading at 4.3%, which is well above the Fed’s target but down substantially from 4.8% just two weeks ago. The drop in oil prices lately has certainly contributed to removing some froth there, but the chorus of hawkish commentary from Fed members is another likely contributor. Today’s release minutes from the latest FOMC meeting may shed further light on the Fed’s outlook. China’s CPI gauge for March is also due out later this week, and may be another possible influence on gold prices.

XAU/USD technical forecast

XAU/USD is trading just above the 78.6% Fibonacci retracement level. Bears have made several attempts over the past week to break below the level but have failed outside of intraday moves. To the upside, the falling 20-day Simple Moving Average (SMA) may cap a bounce. A break below the 78.6% Fib would open the door for prices to test the rising 50-day SMA and the 1900 psychological level.

XAU/USD daily chart

Follow Thomas Westwater on Twitter @FxWestwater

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