Gold Price Forecast: XAU/USD is rallying above the 200-DMA and eyes the 20-DMA at around $1860

• The market sentiment remains negative as new China provinces have local outbreaks, so additional lockdowns loom.
• Fed’s George and Evans back 50-bps increases in the next meetings.
• Fed Harker commented that the US might have a few quarters of negative growth.
• Gold Price Forecast (XAU/USD): A daily close above the 200-DMA would shift the bias to neutral and opens the door for an upward move to $1860s.

Gold spot (XAU/USD) is rallying in the North American session, and it is above the 200-day moving average (DMA), which lies at $1838.30, threatening to shift the yellow metal negative bias to neutral as the precious metal takes advantage of lower US Treasury yields and a soft US dollar. At the time of writing, XAU/USD is trading at $1847.68 a troy ounce.

A softer US dollar and weaker US corporate earnings boost Gold’s appeal amidst a dampened sentiment

The factors above-mentioned are a tailwind for Gold. Even though Shanghai is about to reopen after dealing with Covid-19 restrictions for at least a month, other China cities with local flare-ups have increased concerns of further lockdowns. Also, the inflationary scenario started to hit the earnings of big US retailers, which lowered their growth forecasts, despite that Retail Sales, showed the resilience of consumers. That, alongside the possible scenario of stagflation around the US economy, despite Fed’s chief Powell’s confidence that the US economy is strong, boosts the prospects of Gold.

In the meantime, the greenback remains on the backfoot, a tailwind for the bright metal, weighed by falling US Treasury yields. The 10-year benchmark note is losing 7.5-bps, sitting at 2.819%, while the US Dollar Index, a gauge of the buck’s value, is losing almost 1%, retreating towards 102.981.

Meanwhile, the US economic docket has featured the Initial Jobless Claims for the week ending on May 14, which unexpectedly rose to 218K, more than the 200K estimated. Furthermore, the Philadelphia Fed Manufacturing Index rose to 2.6, worse than the 17.6 estimated, aligning with the drop of the New York Empire State index, which contracted to -11.6, starting to paint a dismal US ISM figure for the next release on the first week of June.

Elsewhere, Fed speakers continue to dominate the headlines. Earlier today, Kansas City Fed President Esther George said that the “rough week in the equity markets” does not alter her support of 50-bps hikes to cool inflation. She added, “right now, inflation is too high, and we will need to make a series of rate adjustments to bring that down.”

On Wednesday, Chicago’s Fed President Charles Evans said that the US central bank needs to hike rates above neutral. Evans added that once the neutral rate is reached, “if we go 50 bp beyond that if we go 75 bp beyond that, then that restrictive setting of policy should be working to bring inflation down.” Later on that day, Philadelphia’s Fed President Patrick Harker stated that the Fed “doesn’t want to overdo it” and commented that the US might have a few quarters of negative growth, but that is not what he is forecasting.

Gold Price Forecast (XAU/USD): Technical outlook

XAU/USD is back above a two-year-old resistance trendline and so far reclaimed the 200-DMA at $1838.31. That said, the non-yielding metal bias shifted from negative to neutral. However, a daily close above the previously-mentioned level is needed to cement the bias. Failure to do so would leave the yellow metal vulnerable to further selling pressure.

With that said, the XAU/USD’s first resistance would be May 12 daily high at $1858.67. Break above would expose the 20-DMA at $1863.06, followed by the 100-DMA at $1885.65, shy of the crucial $1889.91 March’s lows-turned-resistance area.