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XAU at Major Support Level as US CPI Nears

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Gold, XAU/USD, Real Yields, Fed, CPI, Technical Forecast – Talking Points

  • Gold prices may fall further on US consumer price index (CPI)
  • ETF holdings of gold fall with prices as bulls lose confidence
  • XAU may threaten its yearly low if confluent support breaks

Gold prices are moderating through Wednesday’s Asia-Pacific session after falling overnight. XAU is now trading at its lowest levels since February 11. The Federal Reserve’s renewed battle against inflation has effectively sapped bullion of its most influential tailwinds. The Fed is expected to deliver nearly 200 basis points of additional tightening through 2022, according to overnight index swaps (OIS).

That has driven a pullback in market-based inflation expectations, and real yields have continued to climb into positive territory, both a detriment to gold’s fundamental outlook. Prices are currently down over 3% month-to-date, adding to the 2.10% pullback in April. The move has also virtually flipped the bull narrative on its head. Calls for a rebound to the high-profile 2,000 level have largely disappeared from analysts’’ forecasts in recent weeks amid the hawkish recalibration among central banks.

The bearish sentiment is being reflected in gold holdings among exchange-traded funds (ETFs). Total known ETF holdings of gold have dropped to the lowest levels since early April (see chart below). Some of that may be attributed to the overall volatility across equity markets, but it doesn’t bode well for the outlook. Tonight’s US CPI print may provide the next driver for prices, as a hotter-than-expected print may firm up Fed rate hike bets further. The Bloomberg consensus estimate sees US inflation crossing the wires at 8.1% on a year-over-year basis.

XAU/USD Technical Forecast

Gold has fallen to a major trendline stemming from the August 2021 swing low. The 200-day Simple Moving Average (SMA) is serving as confluent support. A break below that support would open the door for prices to test the 2022 low at 1778.50 although the psychological 1800 level may offer a level for bulls to rally around if prices don’t drop too quickly. The Relative Strength Index (RSI) is nearing a cross into oversold territory, reflecting the recent weakness in prices.

XAU/USD Daily Chart

xau chart

Chart created with TradingView

— Written by Thomas Westwater, Analyst for DailyFX.com

To contact Thomas, use the comments section below or @FxWestwater on Twitter

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