XAU/USD stalls near 2-month low amid broad-based USD strength

  • Gold fell to an over two-month low on Thursday amid sustained USD buying.
  • Aggressive betting on the Fed’s rate hike has brought the USD closer to levels last seen in 2002.
  • Investors are now eagerly awaiting the Core PCE and US GDP for further momentum.

Gold extended its recent strong retracement drop from the vicinity of the psychological $2,000 mark and continued to lose ground at the start of trading on Thursday. It marked the second consecutive day of negative movement – also the fifth of the previous six – and dragged spot prices to the lowest level since February 17. The US Dollar Index (DXY) is advancing like there is no tomorrow and is now eyeing a move towards the 103.82 area –
last seen in late 2002. This proved to be a key factor putting downward pressure on the dollar-denominated commodity.

Apart from that, the outlook for more aggressive policy tightening from the Fed has further helped to steer the flow away from non-performing gold. In fact, the U.S. central bank is expected to raise interest rates by 50 basis points at its May 3-4 meeting, then again in June and July, and eventually raise rates to around 3.0% from here the end of the year. The bets were reaffirmed by hawkish comments from various FOMC members, including Fed Chairman Jerome Powell last week. This, combined with inflation fears, remained supportive of high US Treasury bond yields and supported the dollar.

Meanwhile, analysts at ANZ Bank argued that escalating geopolitical risk and inflation should continue to support investment demand. On top of that, TD Securities analysts said: while gold prices have remained extremely resilient in the face of an aggressively hawkish Fed, while a protracted war in Ukraine has simultaneously raised both geopolitical uncertainty and inflation risks and thus fueled demand for safe havens, we see few participants left with an appetite to buy gold. Analysts explained that Comex shorts have been largely wiped out, removing some fuel for price strength, while safe-haven flows have a historical tendency to dissipate.

Read also: Gold Futures: Short-term rebound in store?

Going forward, investors are focusing on some potential economic data, which will have a significant impact on the DXY. The US Bureau of Economic Analysis will release quarterly Core Personal Consumption Expenditure (PCE) on Thursday, which is expected to print at 5.4%, higher than the previous print of 5%. Other than that, gold prices and the DXY will be impacted by the release of Gross Domestic Product (GDP) numbers. Annual GDP is estimated at 1.1% from the previous print of 6.9%, while quarterly GDP has room for an upside surprise. A preliminary reading for quarterly GDP is 7.3% from the previous figure of 7.1%.

Also Read: Gold Price Prediction: XAUUSD Must Hold $1,877 to Maintain Uptrend – Credit Suisse

Gold technical analysis

On a four-hour time frame, XAU/USD faces barricades near the supply zone placed in a tight range of $1,890.21-$1,895.15. The 20- and 50-period exponential moving averages (EMAs) at $1,905.31 and $1,925.57 respectively are heading south, adding to the downside filters. Meanwhile, the Relative Strength Index (RSI) (14) is hovering in a bearish range of 20.00-40.00, signaling more pain ahead.

Gold four hour chart

Looking at the longer-term charts, the price of gold is heading towards a potentially strong support zone:

The weekly chart focuses on the previous support and resistance while the monthly chart shows that the price of gold has already reached the golden number of 61.8%.