Gold Price Forecast: XAU/USD struggles to defend $1,800 at monthly low amid Fed fears

• Gold Price prints mild gains around one-month low, snaps two-day downtrend.
• Risk appetite improves on pre-Fed positioning, mixed Asian session.
• Yields retreat from multi-year high, stock futures print mild gains.
• FOMC is up for 0.50% rate increase but 75 bp calls are loud and making it harder for Powell to please markets.

Gold (XA/USD) seesaws around $1,810 as it pares recent losses around the monthly low during early Wednesday. In doing so, the bright metal prints the first daily gains in three while preparing for the US Federal Reserve’s (Fed) monetary policy decision. Also favoring the corrective pullback from the monthly low is the retreat in the US Treasury yields and mildly bid US stock futures.

US 10-year Treasury bond yields drop 3.9 basis points (bps) to 3.45% as the bond coupons ease from the fresh high since 2011. The same underpins the mildly bid S&P 500 Futures around 3,750 to exert downside pressure on the gold prices.

In addition to the shift in market sentiment, a light calendar in Asia ahead of China’s Retail Sales and Industrial Production joins the anxiety ahead of the Federal Open Market Committee (FOMC) to limit AUD/USD moves and allow bears to take a breather.

Alternatively, pressure from the US diplomat to battle inflation and improve balance sheet join updates surrounding Taiwan and China’s covid conditions to challenge gold’s rebound.

White House (WH) Economic Adviser Brian Deese and National Economic Council Deputy Director Bharat Ramamurti were among the US diplomats who highlighted the inflation woes and showed readiness to battle the same during their interviews with CNN and Bloomberg respectively.

Further, Beijing reported the highest coronavirus cases in three weeks the previous day and called for more activity restrictions. Shanghai, on the other hand, marked ease into the COVID-19 cases but keeps the recently announced limits to curb the virus from spreading too fast.

Talking about the data, the US Producer Price Index (PPI) matched 0.8% MoM forecasts for May, also easing to 10.8% YoY figures versus 10.9% expected and prior readouts. The PPI ex Food & Energy, known as Core PPI, dropped below 8.6% YoY forecasts to 8.3%.

Looking forward, US China’s monthly prints of Industrial Production and Retail Sales for May can entertain intraday traders ahead of the US Retail Sales and the FOMC. Given the higher expectations from the Fed, the odds of a disappointment from the US central bank and the resulted likely spike in the gold prices can’t be ruled out. It should be noted that the CME FedWatch Tool shows more than a 99% chance of a 75 bp rate increase at the latest.

Also read: Gold Price Forecast: On its way to challenging the $1,800 threshold

Technical analysis

Gold flirts with buyers inside a short-term falling wedge bullish chart pattern as it pokes the weekly resistance line around $1,810.

Given the RSI’s nearly oversold conditions, a corrective pullback towards the monthly top surrounding $1,880 can’t be ruled out if the quote manages to stay beyond $1,810. However, the June 01 low around $1,830 could act as the validation point for a fresh run-up.

Alternatively, pullback moves may initially aim for the $1,800 threshold before challenging May’s low of $1,786. In a case where the XAU/USD bears manage to conquer the $1,786 support, there are multiple hurdles between $1,780 and $1,785, comprising the yearly bottom, to challenge the further downside.

Gold: Four-hour chart

Trend: Rebound expected