Gold Price Forecast: Bulls stay in charge towards critical daily resistance

• Gold is testing critical resistance territories and a correction could be in store. 
• Fundamentally, gold is enjoying the bullish landscape which could attract more buyers. 

Gold extended gains following the prior day's US Consumer Price Index which is a weight on real yields for which gold is regarded as the perfect hedge. XAU/USD rose from a low of $1,842 to $1,866 on Thursday, adding around 0.7% points by the close of Wall Street.  

Gold climbed despite the advance in the US dollar that rose to a 16-month high a day after the strongest US inflation reading in more than three decades. Amid a holiday-thinned session, US Treasury markets were closed overnight. However, the 10-year Treasury yields implied by futures rose from 1.55% to 1.60%. 

Bond yields have remained elevated due to the residual effects of the strong inflation data. The Consumer Price Index is now at new cycle highs and both the yearly and monthly prints show a second straight month of accelerating gains. Consequently, the markets are expecting US interest rate hikes next year which are underpinning the US dollar. 

In related markets, equities rebounded on expectations higher consumer prices will help corporate growth. Commodity prices were mostly higher, the Bloomberg Commodity Index up 1.3%, its strongest day since 25 October. '' The spectre of higher and entrenched inflation saw investor demand surge for the precious metal,'' analysts at ANZ Bank said. 

''Spot prices broke out of a downward trend that has been in place for the past 15 months. The move suggests the market doesn’t expect the Fed to tackle inflation soon,'' the analysts added. ''For the moment, the buying hasn’t manifested itself in the exchange-traded funds market, with inflows remaining muted.''

Gold's key level is at $1,860/oz

Gold is making its marl around the $1,860 level, an area on the carts where analysts at TD Securities have earmarked as being key. ''Gold prices need only close north of $1860/oz to catalyze further CTA long acquisitions, which should cement a more supportive trend.''

''Hawks are still getting squeezed,'' the analysts said, ''but the breakout in gold has also attracted new buyers.''

'''Importantly,'' the analysts added further, ''the breakout has driven the China Smart Money group of funds to add a significant amount of new length in SHFE gold.''

''After all, our ChartVision framework, which stress-tests 75 technical indicators to identify the critical threshold for a change in trend, suggests that with gold prices north of $1845/oz, an uptrend in gold should form by March 2022.''

Gold technical analysis

While the fundamental backdrop is bullish, the technical outlook points towards an imminent correction. The price is reaching into daily resistance where rejection would be expected to lead to a significant retracement. The 38.2% Fibonacci ratio aligns with the summer and mid-Sep highs as a potential target for the bears in the comings days near $1,830.