Gold Price Forecast: Can $1,930 Drive Sell-off?

The gold price is testing bids in the $1,930 range as rising tensions between the West and Russia over atrocities in Ukraine maintain demand for the US dollar as a safe haven. The downside in GOLD appears to be cushioned in the bright metal, as US Treasury yields remain weak across the curve, despite increased risk-off flows into US government bonds. Investors weigh in on the Fed’s aggressive tightening plans after a strong US labor market report released last Friday.

The focus now shifts to the ISM and S&P Global Services PMIs in the United States and speeches from Fed officials. The UN Security Council meeting scheduled for later this Tuesday will also take center stage, with Ukrainian President Volodymyr Zelensky scheduled to speak amid the escalating Russia-Ukraine crisis.

Gold (XAU/USD) has been trading in a range of $1,915.78-1,949.86 over the last three trading sessions, indicating that market sentiment is positive. Market participants’ processing of worst-case scenarios in the aftermath of Russia’s invasion of Ukraine has kept the market in a positive mood. The precious metal is trading sideways and is looking for a catalyst to find direction.

Investors saw progress in the Russia-Ukraine peace talks following discussions over the major stipulations to be printed in a special ceasefire document. Furthermore, Russian rebels’ month-long military activity in Ukraine suggested that Russia may soon run out of military equipment, liquidity, and resources, forcing it to consider a ceasefire. However, Ukraine President Volodymyr Zelensky’s accusation against Russia for the death of civilians by Russian forces in Bucha, Ukraine, has strained the ceasefire’s expectations.

Meanwhile, the US dollar index (DXY) has reclaimed 99.00 on the back of expectations for a strong US Services PMI on Tuesday. The preliminary estimate for the US Services PMI is 58, up from 56.5 in the previous print. In addition, the likelihood of a jumbo interest rate hike has risen sharply in the aftermath of the positive Unemployment Rate. With the US unemployment rate at 3.6 percent and its consistency below 4 percent, the Federal Reserve is preparing to raise interest rates by 50 basis points (bps) (Fed). In addition, a strong labor market and attainment of full employment are expected to result in an aggressively tight monetary policy in May. Furthermore, US Treasury yields are well-balanced within a narrow range. For instance, the 10-year benchmark US Treasury yield is trading near 2.4 percent and is expected to rise further.

The Federal Open Market Committee (FOMC) minutes will be the main event in the FX domain this week. The FOMC minutes will dictate the Fed’s strategy for advocating the 25 basis point interest rate hike decision.

Gold (XAU/USD) Technical Analysis

On an hourly basis, XAU/USD is oscillating in a diamond pattern, indicating a bullish reversal following a steep fall. The formation denotes an inventory adjustment in which inventory is transferred from retail participants to institutional investors. The 20 and 50 day Exponential Moving Averages (EMAs) near $1,930 are overlapping, indicating a possible consolidation. In the meantime, the leading indicator, the Relative Strength Index (RSI), is consolidating between 40.00 and 60.00, indicating a neutral bias in gold.

On the downside, gold may find immediate support at $1,919 and a break below this could lead the price towards $1,900. Likewise, the resistance continues to stay at 1,930 and $1,945. Good luck!