Gold Price Forecast: Between Flight to Safety & Rate Hike Bets

Gold prices are up slightly this Wednesday, countering Tuesday’s losses that were prompted by hawkish comments made in a recent event by Fed Chair Jerome Powell. The scenario has altered gold price forecasts in the short term.

The Fed Chief hinted at the potential of vast rate increases by the Federal Reserve in 2022 to counter raging consumer inflation. His comments sent US 10-year long term yields soaring to multi-year highs, prompting a shift of investment flows from the non-yielding yellow metal to US Treasuries. However, the Russia-Ukraine crisis and the safe-haven demand it is producing has kept a solid floor on gold prices, containing its slide. 

In a related development, the St. Louis Fed President James Bullard has made an aggressive hawkish call on the Fed Funds Rate, asking that the Fed take steps to raise interest rates to 3% this year to contain US inflation is presently at 40-year highs. The hawkish comments from Bullard and those of Fed Chief Powell have raised the odds for a 50bps rate hike in May from 50% to 75%. Powell is due to speak at a virtual event later today.

Gold prices are up marginally, trading 0.3% higher as of writing. The gold price forecast for the week will be an interplay between the bets for additional rate hikes (gold-negative) and safe-haven demand due to the Russia-Ukraine conflict (gold-supportive).

Gold Price Outlook

The slide in gold prices on the XAU/USD chart, which kicked off on 9 March, appears to have found support at the 1918.68 price mark (2/18 March lows). If the bulls can initiate a strong bounce at this point, 1949.60 (1/17 March highs) will be the immediate target. Above this level, additional barriers come into play at 1973.89 and 2007.28 (10 March high). 

On the flip side, if the bulls fail to generate enough momentum to save the 1918.68 support level, a decline towards 1900.76 (1 March low) or 1877.76 (24 February low) cannot be ruled out. Additional support comes in at 1850.78 and 1832.22.  

XAU/USD: Daily Chart