Gold Price Forecast as the US Dollar Rallies to a Two-Year High

Apr 8, 2022 04:13 PM ET
Gold Price Forecast as the US Dollar Rallies to a Two-Year High
  • The gold price has been range-bound for over a week.
  • The Russia-Ukraine war and inflation concerns have continued to support the precious metal.
  • Rising Treasury yields and a stronger US dollar have curbed its upward potential.

Russia-Ukraine war

The ongoing crisis in eastern Europe remains a major bullish driver of gold price, which explains why it held steady despite the Fed’s hawkish stance in its March meeting minutes. Indeed, since Russia invaded Ukraine about one-and-a-half months ago, the once evasive level of $1,900 has been a steady support zone. 

In the ensuing sessions, the gold price will likely remain above the aforementioned support level after the US announced fresh sanctions on Russia. The new package targets key Russian officials, their family members, and banks. This includes President Putin’s two adult daughters. Besides, it has frozen assets of Alfa Bank and Sberbank, which are linked to any US financial institution. Furthermore, US citizens have been banned from conducting business transactions with the two banks.  

According to the Treasury Secretary, Janet Yellen, the US also wants Russia removed from G20 forums. The European Union is also set to approve its new sanctions package on Russia on Friday.  

Strong dollar

Similar to other commodities that are priced in US dollars, gold price tends to move conversely to the greenback. Notably, the Fed’s hawkish stance in the minutes released on Wednesday boosted the currency. Earlier on Friday, the dollar index rose to the psychological level of $100 for the first time since May 2020. At the time of writing, it had eased to $99.85. 

Treasury yields also hit an intraday high of 2.69%; a level last seen in March 2019. The rising yields have boosted the US dollar while curbing the gold price upward potential. 

The rallying of the greenback is founded on the US central bank’s aggressive tone in dealing with the heightened inflationary pressures. In the FOMC meeting minutes released on Wednesday, most of the Fed officials are of the opinion that several rate hikes of 50 basis points will be appropriate. 

The market expects the bank to start increasing rates by a half-percentage point from its next meeting in May. According to the minutes, uncertainties linked to the ongoing Russia-Ukraine war deterred it from making such an aggressive move. Instead, it increased rates by a quarter-percentage point. The minutes also showed a consensus to reduce its balance sheet by about $95 billion per month. 

On the one hand, prospects of rate hikes will place a lid on the gold price in the ensuing sessions. Nonetheless, there are concerns that the US central bank may not raise rates as fast as needed to ease the inflation that is currently at a 40-year high. As such, inflation and geopolitical tensions in eastern Europe will continue to offer support to the precious metal. 

Gold price forecast

The gold price has been range-bound for over a week now amid the countering forces of rate hikes and safety against geopolitical and economic disruptions. At the time of writing, it was at 1,928.00, which is within the aforementioned range of between 1,915.86 and 1,950.50.  

On a daily chart, it is hovering around the 25-day EMA at 1,930.29 while remaining above the 50-day EMA. In the ensuing sessions, the aforementioned horizontal channel will be a crucial one for gold price. 

As the market reacts to the ongoing Russia-Ukraine war and new sanctions from the West, it may rise further to find resistance at the crucial level of 1,950.50.  On the lower side, 1,900 will likely remain a steady support zone.

The gold CFD daily price charts

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