Gold Price Forecast: XAU/USD eases from $1,880 hurdle on strong USD ahead of Fed

• Gold struggles to extend Friday’s run-up, retreats from five-week high.
• Hawkish Fed bets, China news join short-term resistance line to challenge buyers.
• Risk-aversion can restrict upside moves ahead of Wednesday’s FOMC.
• Gold, Chart of the Week: XAU/USD bulls need to commit or face an avalanche of supply

Gold Price (XAU/USD) pulls back to $1,874, after rising to the highest levels since May 09, during Monday’s Asian session. The precious metal’s latest weakness could be linked to the US dollar’s broad gains ahead of this week’s Federal Reserve (Fed) monetary policy meeting, as well as the risk-off mood. Additionally, a short-term trend line resistance also challenges the bullion buyers.

That said, the US Dollar Index (DXY) refreshes its monthly high around 104.50 while extending the previous three-day uptrend. The greenback gauge cheers the risk-aversion wave and Friday’s hot inflation data to renew a multi-day high.

The DXY rallied on Friday amid increased fears over the Fed’s aggression on skyrocketing US inflation. That said, the headline US Consumer Price Index (CPI) rose to 8.6% YoY versus 8.3% expected while the Core CPI jumped 6.0% YoY compared to the expected drop to 5.9% from 6.2% a month earlier. It’s worth noting that the record low of the University of Michigan Consumer Sentiment Index for June, to 50.2 versus revised down 58.1, couldn’t stop the US dollar bulls.

On the other hand, Beijing witnessed a jump in the covid numbers during the weekend and recalled some of the virus-led activity restrictions together with the mass testing. Shanghai is on the same line. Recently, Beijing’s local government spokesman Xu Heijian mentioned that a covid outbreak linked to a bar in Beijing is ferocious. Furthermore, comments suggesting fresh US-China tussles over Taiwan also probe XAU/USD bulls.

Amid these plays, Wall Street slumped and the US Treasury yields rallied which in turn propelled the US dollar’s safe-haven demand. That said, the S&P 500 Futures drop 1.0% whereas the US 10-year Treasury bond yields remain mostly unchanged around 3.16% at the latest.

Moving on, gold traders can pay attention to the risk catalysts ahead of Wednesday’s Federal Open Market Committee (FOMC). Should the Fed manage to keep the bulls happy, the XAU/USD prices are likely to reverse the latest gains.

Technical analysis

Gold fails to extend the rebound from one-month-old horizontal support, despite crossing the 200-SMA, as the RSI (14) steps back from overbought territory. Also challenging the metal prices is the three-week-old ascending resistance line, near $1,880 by the press time.

Even if the metal prices manage to cross the $1,880 hurdle, the 50% and 61.8% Fibonacci retracement (Fibo.) of April-May downside, respectively near $1,893 and $1,918, could challenge the XAU/USD buyers.

Alternatively, pullbacks remain elusive until the quote stays beyond the 200-SMA level surrounding $1,853.

Following that, a horizontal area comprising multiple levels marked since May 18, near $1,825-30, will regain the gold seller’s attention. If at all the metal drops below $1,830, the odds of its slump towards the previous month’s low near $1,786 can’t be ruled out.

Gold: Four-hour chart

Trend: Pullback expected