Gold Price Analysis: XAU/USD bulls moving in on key hourly resistance, US dollar remains soft

• Gold bulls moving back in as the US dollar remains on the backfoot.
• This week's candle is bullish and the bulls have corrected to a 38.2% ratio milestone.

At $1,850, the gold price is losing around 0.18% on the day, falling from a high of $1,854.43, but has recovered from the day's lows of $1,840.75. The US dollar continues to struggle after the Federal Open Market Committee minutes.  DXY is trading near the lows of the day at 101.768 dut the markets’ dovish take on the minutes.

Despite the minutes from the Federal Reserve's May meeting pointing to additional 50 basis point interest rate hikes in June and July, investors moved out of the greenback as observers considered the prospects for the Fed slowing the tightening cycle later in the year.

The minutes revealed that most participants at the Fed's May meeting judged 50 basis point hikes would likely be appropriate at the June and July policy meetings to combat inflation that they agreed had become a key threat to the economy's performance. Additionally, many of the board members believed that a fast pace of tightening would leave the central bank well-positioned later this year to assess the effects of policy firming.

No one really knows how far rates have to go

''We disagree with the market’s dovish take on the minutes,'' analysts at Brown Brothers Harriman argued.   

''The dollar has softened after the FOMC minutes and US yields have fallen. To us, the views expressed in the minutes are about all they could say at the start of an aggressive tightening cycle where no one really knows how far rates have to go. The Fed is facing a very complicated situation and so is trying to burnish its hawkish credentials while trying not to pre-commit to any rate path. The minutes clearly reflect this balancing act.''

Earlier in the month, the dollar index had reached a nearly two-decade peak above 105, however, the signs that aggressive Fed action may already be slowing economic growth have prompted traders to scale back tightening bets, with Treasury yields also dropping from multi-year highs as well.

Meanwhile, to the contrary, data released on Thursday showed the number of Americans filing new claims for unemployment benefits fell last week, signalling continued tightness in the labour market. However, the decline partially unwound some of the prior week's surge, which had pushed claims to their highest level since January.

In other data on Thursday, the Commerce Department confirmed the economy contracted in the first quarter under the weight of a record trade deficit and a slightly slower pace of inventory accumulation compared to the fourth quarter. Real Gross Domestic Product fell at a 1.5% annualized pace in the March quarter, compared to a 1.4% drop initially projected, according to the second estimate from the Bureau of Economic Analysis. 

Looking ahead, Friday's data schedule will include April personal income and spending data, with the Fed's preferred inflation measure, and the final reading for the May Michigan Sentiment index.

Besides data, there are fears about slowing growth in China and energy security risks in Europe could bolster safe-haven demand for the USD. ''In an environment in which the Fed and other central banks are removing liquidity, we expect higher levels of volatility in FX market,'' analysts at Rabobank argued. 

Gold technical analysis

The bulls have failed to maintain control of the gold price as it crumbles below a 78.6% Fibonacci of a fake-out bullish impulse: 

However, the price is now moving in on resistance and should bulls commit near $1,850, there will be prospects of a move beyond resistance which could be the foundations of a bullish close to the week. 

Gold weekly chart

This week's candle is bullish and the bulls have corrected to a 38.2% ratio milestone with prospects of a 50% mean reversion in due course.