Gold Price Forecast: XAU/USD bulls are advancing from over the horizon

• Gold has extended its downside into fresh bear cycle lows as the US dollar soars.
• Meanwhile, the price is reaching a key area on the daily chart where bulls will likely emerge.

At $1,739.31, the gold price is underwater by some 1.4% in the North American afternoon session and after the release of the Federal Open Committee Minutes which underpinned the prospects of a 50 or a 75 basis point interest rate hike at this month's meeting. 

The minutes failed to energise what has turned out to be a relatively quiet session on Wednesday although stocks on Wall Street have risen with the S&P 500 now over 0.6% higher for the day. US stocks gyrated ahead of the minutes but have moved higher given that there was little in the detail that ensures an uber hawkish path in the latter half of the year.

Additionally, the minutes did not necessarily cement another sure 75 basis points as soon as July, leaving just a 50bp rate hike on the table still as well. While the minutes don't mention the word "recession," there was an acknowledgement that the interest rate hikes could have a bigger than anticipated dampening effect on the economy. Another hike this month was flagged but the Fed's chairman, Jerome Powell, would not commit to another 75 bp move in the presser at the June meeting. 

However, according to CME Fed watch, the markets now see a 90.3% probability of another interest rate hike of at least 75 basis points at the conclusion of this month's two-day meeting, the last such meeting on the date book until the fall. This has supported the greenback which rose to fresh 20-year highs on Wednesday, sinking the euro that has tumbled to a new two-decade low. The dollar index (DXY), which tracks the greenback versus a basket of six currencies, burst through 107 the figure, sending the euro below 1.0200 vs the greenback for the first time since December 2002. 

Fed bets tailing off?

Looking forward, the US dollar could struggle to extend gains in the Fed expectations alone, for which 50 bp hikes at the subsequent meetings November 2 and December 14 are moving towards 25 bp. Analysts at Brown Brothers Harriman explained that WIRP shows the beginning of an easing cycle by Q1 23. ''This is a much earlier timeframe for easing and one that we think is very, very premature since it would imply a recession hitting near the end of this year or early next year.  The swaps market is now pricing in 175 bp of tightening over the next 6 months that would see the policy rate peak between 3.25-3.50%.''

Nevertheless, as analysts at TD Securities explained, ''gold is being weighed down by substantial CTA trend followers.'' The analysts explained that ''the massive amount of speculative length from proprietary traders in the yellow metal also appears complacent, given that this length was accumulated as early as 2020. In turn, they said, this ''suggests the bias remains to the downside in gold.''

Gold price analysis

Gold is trading below the rising supporting trendline on the monthly time frame but the critical fractal lows are located at $1,676.

Meanwhile, however, the price is reaching a key area on the daily chart where bulls will likely emerge. A correction to mitigate the imbalance of bids in this sell-off could see the yellow metal correct with a 50% mean reversion on the cards.