Gold Price Forecast as Safe-Haven Appeal Counters Talks on Fed’s Interest Rate Hikes

Mar 24, 2022 11:23 AM ET
Gold Price Forecast as Safe-Haven Appeal Counters Talks on Fed’s Interest Rate Hikes
  • The gold price has been range-bound as the demand for safe havens counters the Fed’s aggressive tone on dealing with inflation. 
  • The precious metal will likely remain elevated above the critical zone of $1,900 in the short term.
  • Higher Treasury yields may curb its upward potential.

Fed’s interest rate hikes

The gold price has remained range-bound as bets on higher interest rates curb the metal’s upward potential. On Monday, Jerome Powell’s remarks on dealing with inflation were rather aggressive compared to a week ago during the Fed interest rate decision. 

While delivering his speech in the National Association for Business Economics conference on Monday, the Fed Chair noted that inflationary pressures were heightened and that the labor market had recovered strongly. Indeed, he acknowledged that inflation was jeopardizing the steady recovery of the US economy from the COVID-19 pandemic.

Based on data released in the past week, US inflation is at a 40-year high of 7.9% YoY. In its recent interest rate decision, the Fed increased rates by a quarter-percentage point as expected. Notably, this was the first hike in over three years.  

In his Monday’s speech, the Fed Chair indicated that if needed, the Fed is ready to hike rates by a half percentage point in its May meeting and thereafter. Higher interest rates are usually bearish for the gold price as it increases the opportunity cost of holding the non-yielding asset. Indeed, this is the reason why the precious metal dropped to a one-week low on Tuesday.

In early Wednesday trade, the benchmark 10-year Treasury yields extended their gains to a three-year high of 2.41%. At the time of writing, it was at 2.34%. However, even with the recorded swings, it has held steady above 2.00% for close to two weeks. Rising US bond yields will likely curb the gold price upward potential in the short term.

Russia-Ukraine talks

While bets on interest rate hikes remain at play, the gold price has continued to find support in the ongoing Russia-Ukraine war. On Wednesday, Ukraine’s President Volodymyr Zelenskyy noted that while the Russia-Ukraine talks are still confrontational, there has been some noteworthy progress.

Even so, the US is set to impose further sanctions on Russia on Thursday, targeting lawmakers and oligarchs. Investors are keen on the details of those sanctions and Russia’s reaction to the announcement. The ongoing war and stalemate in peace talks will likely sustain the floor for gold price at $1,900, which has been a steady support zone for the precious metal since Russia invaded Ukraine a month ago. 

Gold price forecast

The gold price has edged higher in early Thursday trade, even as it remains within the horizontal channel formed over a week ago. Since the beginning of last week, the spot price has largely been within a range of 1,908.16 and 1,950.50. As at the time of writing, it was at 1,942.35. 

On the daily chart, the gold price is still above the long-term 200-day EMA, which has been the case since early February. It is also above the 25 and 50-day EMAs. A look at the price chart shows that while price swings are probable in the ensuing sessions, the precious metal will likely remain in an uptrend. 

In particular, I expect 1,900 to remain a steady support zone in the short term. This range will be worth watching for the remainder of the week. Heightened demand for safe havens may give the bulls an opportunity to break the resistance at the range’s upper border of 1,950 and boost the gold price to 1,974.55. On the flip side, higher Treasury yields and/or progress in Russia-Ukraine talks may have it hover around the crucial zone of 1,900. 

The gold CFDs daily price chart


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