Gold Price Forecast: XAU/USD extends recovery toward $1880

• XAU/USD rises after finding support at the $1850 area.
• FOMC meeting kicks off, US yields retreat.
• US dollar drops modestly across the board, DXY drops by 0.25%.

Gold printed a fresh daily high during the American session at $1878.20 on Tuesday boosted by a recovery in Treasuries and a weaker US dollar. The metal is holding onto gains, recovering from monthly lows.

Earlier, XAU/USD bottomed at $1850, the lowest level since mid-February and then turned to the upside. The recovery gained support above $1860 and boosted gold further.

On the day before the FOMC decision, US yields are pulling back from multi-year highs. The US 10-year stands at 2.92% after hitting on Monday 3% for the first time since 2018. The Fed is expected to announce an increase in interest rates by a half percentage point that would be the first one by such magnitude in more than 20 years. Market participants also expect the central bank to start shrinking its balance sheet by USD95 billion per month from June.

What the Fed signals about the futures, will likely trigger volatility across financial markets. “Our base case remains that the Fed will follow up next week’s 50bp hike with 50bp increases in June and July before switching to 25bp as quantitative tightening gets up to speed. We see the Fed funds rate peaking at 3% in early 2023”, said analysts at ING.

Next resistance at $1880

If XAU/USD keeps rising, it will face resistance at the $1880 level and then at $1890. Even if it hits $1900 the outlook will remain negative. A recovery back above $1915 would weaken the bearish bias.

On the flip side, a slide back under $1860 would expose the $1850 critical area that is the recent low and also a medium-term level. Below at $1833 awaits the 200-day Simple Moving Average.

Technical levels