XAUUSD Eyes April Lows of $1,915 Amid US Dollar Strengthening

  • XAU/USD remains exposed to downside risks as the US Dollar encourages risk aversion.
  • A 50 basis point interest rate hike will feature in May, as dictated by Fed policymakers.
  • Investors should prepare for a faster return to neutral rates to control inflation.

The price of gold extends its losing streak for the third straight day, starting another week on the wrong foot. The risk-free market environment is driving safe-haven demand for US government bonds while weighing heavily on yields. The price of gold, however, is unable to capitalize on risk flows as the US dollar remains firmer during the session. Worries over aggressive Fed rate hikes and the spread of covid from China to Beijing are undermining investor confidence, keeping sentiment around the US dollar supported at the expense of the price of gold. Meanwhile, a hawkish turn from the European Central Bank (ECB) further adds to XAUUSD’s decline.

Technically, the price of gold produced a weekly close below the critical 21 and 50 daily moving averages (DMAs), keeping the March lows of $1,890 in sight. Going forward, market perception of risk sentiment and Fed expectations will continue to influence gold price action.

”Rates continue to reprice higher as the market eyes another rate hike in 2022, forecasting ten more hikes over the course of the year, hinting at a larger overshoot from neutral. As gold prices have remained extremely resilient in the face of an aggressively hawkish Fed, 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 wanting to buy gold,” said analysts at TD Securities.

Fed Chairman Jerome Powell, in his testimony at the International Monetary Fund (IMF) meeting on Thursday, mentioned a 50 basis point (bps) interest rate hike on the cards. This reinforced the possibility of a case of the Fed announcing a giant rate hike in May on monetary policy. In addition, the Fed’s Powell signaled that the decades-high inflation in the U.S. economy demands a rapid increase in interest rates, indicating that investors should prepare for more than one rate hike announcement. rate of 50 basis points by the Fed this year. Additionally, the risk aversion theme in the market supports the greenback against the precious metal.

Gold technical analysis

On an hourly timescale, XAU/USD is hovering below the 61.8% Fibonacci retracement (placed from the March 29 low at $1,890.21 to last week’s high at $1,998.43) at 1 $931.56. The 20- and 50-period exponential moving averages (EMAs) are on the downside, adding to the downside bias. Meanwhile, the Relative Strength Index (RSI) (14) has moved into a bearish range from 20.00 to 40.00, signaling another bearish impulse wave ahead.

Gold hourly chart

Richard L. Militello