Gold Price Forecast: XAU/USD consolidates in key support territory

• Gold price is mitigating some of the bullish impulse from Tuesday.
• US dollar remains on firm footing despite Core CPI miss. 
• Ukraine's geopolitical risk is offering support to gold and Putin is turning up the heat. 

The gold price rallied on Tuesday and is consolidating on Wednesday in early Asian markets after another strong rise in US inflation that was reported in the early hours of the New York trade. XAU/USD is currently trading at $1,963.03, down some 0.18% after sliding from a high of $\1,968.06 to a low of $1,962.95. 

Core CPI missed estimates, suggesting that the Federal Reserve might not need to be in such a hurry that the market has been pricing for. Core prices, which exclude food and energy prices, moved up by just 0.3%, below the 0.5% expectations and the smallest increase since September. 

However, we saw the US dollar rally hard again while US equities fell, retracing the relief rally as money markets continue to price in a hawkish Fed. The US Treasury's 10-year auction hit a high yield of 2.72% on Tuesday, up from the 1.92% high in the previous month. With inflation expectations remaining relatively steady, if the 10-year yield continues higher beyond the 2.836% highs set this week, it will be on track to test the October 2018 high near 3.26%.

Fed officials are likely to remain hawkish. Overall, this data is unlikely to change the Federal Reserve’s near term thinking about the need to hike. ''Fed governor Brainard (governors always vote) reiterated that controlling inflation is the FOMC's priority,'' an analyst at Westpac explained. ''She expects some tightening in financial conditions to help moderate demand, with easing in supply constraints as well, the combination helping bring inflation down. She welcomed the moderation in core goods prices in the March CPI report, but also warned not to put too much stock into one piece of data.''

Therefore, the expectations are that a 50 bp hike next month will potentially keep the US dollar on track for the March 2020 high near 103 as measured by the DXY. It has already printed a fresh cycle high on the day at 100.333. 

Meanwhile, in addition to inflation hedges, gold is continuing to benefit from heightened geopolitical risks and the Russian president, Vladimir Putin, has turned up the heat in this respect. 

• US to announce $750 million more in weapons for Ukraine

Putin said on Tuesday that peace talks with Ukraine had hit a dead end. Instead, Putin promised that Russia would achieve all of its "noble" aims in Ukraine. "We have again returned to a dead-end situation for us," Putin told a news briefing during a visit to the Vostochny Cosmodrome 3,450 miles (5,550 km) east of Moscow.

"We don't intend to be isolated," Putin added. "It is impossible to severely isolate anyone in the modern world - especially such a vast country as Russia."

This should provide support for gold prices in 2022.

Gold technical analysis

The gold price has been range-trading since mid-March, and if this is  accumulating the 2022 rally, then the price could now be ripening for a bullish continuation as per the daily chart: 

We have seen an attempt to break out, but naturally, a pullback is occurring and it is a question of just how far the price can mitigate the bullish impulse before bulls move back in. However, should a strong US dollar prevail, $1,930 could come under pressure again and if that were to give out, the near term prospects of a move higher will be severely diminished.