Gold Price Forecast: XAU/USD inches back closer to five-month tops, around $1,865

• Gold gained traction for the sixth successive day and inched back closer to multi-month tops.
• Hawkish Fed expectations, sustained USD buying held back bulls from placing aggressive bets.
• The technical set-up supports prospects for an extension of the recent strong upward trajectory.
• Gold Price Forecast: XAU/USD has more room to rise after US inflation-led explosion

Gold attracted fresh buying on Thursday and climbed to the $1,865 region during the mid-European session, albeit lacked any follow-through. The intraday uptick stalled just ahead of five-month tops touched in reaction to hotter-than-expected US consumer inflation figures on Wednesday. In fact, the headline US CPI rose at the fastest annual pace since 1990 and fueled buying interest in precious metals, which is a proven long-term hedge against rising prices.

However, rising bets for a more aggressive Fed policy response to contain stubbornly high inflation might cap gains for the non-yielding yellow metal. In fact, the Fed funds futures market indicate that the first-rate hike could come as soon as July 2022. This was reinforced by the overnight massive rally in the US Treasury bond yields. This, along with a stronger US dollar, acted as a headwind for dollar-denominated commodities, including gold.

Meanwhile, the downside remains cushioned amid the prevalent cautious mood around the equity markets, which tends to benefit the safe-haven gold. Nevertheless, the precious metal, so far, has managed to hold in the positive territory for the sixth successive day. That said, bulls might refrain from placing aggressive bets, rather prefer to wait for a fresh catalyst amid relatively thin liquidity on the back of a bank holiday in the US.

Even from a technical perspective, RSI (14) on the daily chart has just moved above the 70 mark, indicating a slightly overbought condition. This further warrants some caution before positioning for any further appreciating move for gold prices, at least for the time being.

Technical outlook

From a technical perspective, the emergence of fresh buying on Thursday and acceptance above the $1,850 level favours bullish traders. This comes on the back of the previous day's decisive break through the $1832-34 supply zone and supports prospects for additional gains. Hence, some follow-through strength towards testing an intermediate hurdle near the $1,886-87 region, en-route the $1,900 mark, remains a distinct possibility.

On the flip side, the daily swing lows, around the $1,843-42 area, now seems to protect the immediate downside. Any subsequent decline could attract some dip-buying near the $1,834-32 strong resistance breakpoint, which should now act as a strong base for gold. Failure to defend the mentioned levels might trigger some long-unwinding and drag spot prices towards the next relevant support near the $1,815 horizontal zone.

Technical levels to watch