Gold Price Forecast: What if the Fed is Wrong Again?

Gold price has been in a strong sell-off in the past few days. It dropped to a low of $1,838, which was significantly lower than its year-to-date high of $2,070. This decline happened as other assets like stocks, bonds, and commodities have continued falling. The XAU/USD pair will be in the spotlight as the US publishes the latest consumer inflation data.

US Inflation data ahead

Gold jumped sharply after Russia invaded Ukraine in February. Recently, however, the story has been different as investors have embraced the new normal of the crisis in the region. The metals’ price has now declined has investors react to the actions by the Federal Reserve. In its meeting last week, the Fed decided to hike interest rates by 0.50%. It then hinted that it will implement its quantitative tightening policies this year.

Fed officials who spoke this week sounded a bit hawkish as well. For example, Loretta Meister refused to rule out implementing a 0.75% rate hike later this year. Others like Raphael Bostic and James Bullard argued that higher rates were necessary to fight inflation. As a result, the gold price has plummeted as the US dollar index has soared to the highest level in over 20 years. 

However, there is a likelihood that the Fed is getting ahead of itself considering that the American economy is slowing. It barely grew in the first quarter while the US is seeing record trade deficits. Therefore, higher rates in the scale that the Fed is talking about will likely shift the economy from stagflation to a recession.

As such, it is still difficult to take Fed’s pronouncement at face value. For one, these are the same officials who were talking confidently about transitory inflation in 2021.

Gold price will react to the latest US inflation data scheduled for Wednesday. These numbers are expected to show that inflation has peaked. The headline and core inflation figures are expected to decline to 8.0% and 6.0%, respectively.

Gold price forecast

Gold has been in a strong bearish trend lately. As a result, it has managed to move below the key support at $1,892, which was the lowest level on March 29th. It also seems like the metal formed a double-top pattern at about $2,000. It has moved below the 25-day moving average while the ultimate oscillator has been falling. Similarly, the accumulation and distribution indicator has been in a strong downward trend.

Therefore, the outlook is that the gold price will continue falling as bears attempt to move below the support at $1,800.

Gold price