Gold Price Forecast: XAU/USD extends losses towards $1,850 as USD rises with yields

Gold Price gets hammered amid ‘sell everything’ mode amid risk-aversion.

Flight to safety, US dollar dominate while Treasury yields keep rallying.

XAU/USD remains poised to test the $1,850 barrier, awaits US inflation.

Gold Price is tumbling alongside the US government bonds and global stocks, as investors seek refuge in only the US dollar, with risk-aversion at full steam at the start of the fresh week.

After a turbulent last week, dominated by the central banks, global growth fears are back to the fore amid extended Chinese covid curbs and fears over interest rate hikes. In times of market panic and uncertainty, the dollar remains in cruise control, courtesy of its appeal as an ultimate safe haven.

The buck also finds demand as the Fed remains ahead of the curve when compared to all the other major central banks worldwide. Despite a less hawkish stance last Wednesday, the Fed remains on track for 50 bps rate hikes at the next two meetings while beginning the balance sheet reduction process.

A stronger dollar weighs heavily on the USD-price Gold while the rally in the Treasury yields exacerbates the pain in the non-yielding yellow metal. The benchmark 10-year US rates are currently trading at 3.185%, the highest level since November 2018, on Fed rate hike bets.

Adding to the downside in Gold Price, the speculative net shorts on the metal have grown last week, as investors flock to the dollar instead ahead of the all-important US inflation data due later this Thursday.

Looking ahead, Gold Price will remain at mercy of the sentiment around the yields and the dollar. Any rebound in Wall Street stocks could pause the dollar upsurge, offering some reprieve to gold bulls.

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Dollar near 20-year highs amid global markets rout

The dollar index hovered near 20-year highs against major peers on Friday, as market sell-offs in the face of global recession fears propped up the safe haven currency.

European stocks opened lower and were heading for their worst week in two months, following a rout on Wall Street.

The U.S. currency has stood tall on expectations the Federal Reserve will tighten monetary policy faster than peers to stem runaway inflation.

A closely-watched U.S. jobs report due later on Friday could strengthen the case for aggressive tightening, analysts said.

Economists predict a solid 391,000 U.S. jobs were added last month, according to a Reuters poll.

The dollar index, which tracks its performance against a basket of six major rivals, gained as much as 0.5% in early European trading hours to hit a fresh 20-year high of 104.07.

But it later lost ground in choppy trade, and was last broadly flat at 103.55. It appeared touch and go whether the index would record a fifth straight week of gains, up 0.3% on the week.

The Fed raised rates by half a percentage point on Wednesday - the biggest jump in 22 years - but the dollar temporarily cooled on Fed Chair Jerome Powell comments that policymakers were not actively considering 75 basis point hikes in future.

"Financial market conditions will have to get tighter in order to alter central bank thinking on inflation risks and hence the US dollar is set to remain on a strengthening path for now," currency analysts at MUFG said in a note.

The euro lost as much as 0.5% against the dollar in early European trading hours, before reversing course. It was last up 0.2% at $1.05555.

Sterling was broadly flat after earlier dropping below $1.23 for the first time in nearly two years, a day after the Bank of England sent a stark warning that Britain risks a double-whammy of a recession and inflation above 10%.

The BoE also joined the Fed in raising rates, hiking them by a quarter of a percentage point to 1%.

The yen fell back slightly against the dollar, down 0.2% to 130.46 yen per dollar.

In cryptocurrencies, bitcoin weakened slightly to trade just above $36,000.

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XAU/USD at weekly high, bulls awaiting sustained move beyond $1,900

Gold gained traction for the third straight day and climbed to a fresh weekly high on Thursday.

A less hawkish Fed extended support to the metal amid the latest COVID-19 outbreak in China.

The prospects for a further tightening by the Fed revived the USD demand and capped gains.

Gold built on this week's goodish rebound from the $1,850 area, scaling higher for the third successive day on Thursday. The momentum pushed spot prices to a fresh weekly high during the early European session, though bulls struggled to capitalize on the move further beyond the $1,900 round-figure mark.

On Wednesday the Fed increased the Fed Funds rate by 50 bps in the the largest rate hike since 2000, and the beginning of quantitative tightening (QT) – but it downplayed the possibility of further super-size hikes. In the post-meeting press conference, Powell eased market fears about a more aggressive tightening path and said that the Fed was not actively considering a 75 bps rate hike in June. This, in turn, was seen as a key factor that offered some support to the non-yielding yellow metal. Apart from this, concerns about the potential economic fallout from rising COVID-19 cases and strict lockdowns in China benefitted the safe-haven gold.

That said, the markets are still pricing in a further 200 bps rate hike for the rest of 2022, which was evident from a fresh leg up in the US Treasury bond yields. This, in turn, helped revive the US dollar demand and acted as a headwind for the dollar-denominated commodity. This makes it prudent to wait for strong follow-through buying before confirming that gold has bottomed out near the $1,850 region and is positioning for a more robust near-term appreciating move.

Market participants now look forward to the US economic docket, featuring the release of Weekly Initial Jobless Claims later during the early North American session. This, along with the US bond yields, will influence the USD price dynamics and provide some impetus to gold. Traders will further take cues from the broader market risk sentiment to grab some short-term opportunities. 

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Shelling in Russia’s Bryansk region hits parts of oil terminal – Russian news agencies

Russian air defences prevented a Ukrainian aircraft from entering the Bryansk region on Saturday, Russian news outlets reported citing the region’s governor, adding that as a result shelling hit parts of an oil terminal and adjacent territory.

Russian air defences prevented a Ukrainian aircraft from entering the Bryansk region on Saturday, Russian news outlets reported citing the region’s governor, adding that as a result shelling hit parts of an oil terminal and adjacent territory.

“There are no victims,” RIA news agency cited the governor, Alexander Bogomaz, as saying. He added that a logistics building at the terminal was damaged.

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Eurozone Economy Grew 0.2% in 1Q; France Stagnates, Germany Avoids Recession

The Eurozone economy grew by 0.2% in the first three months of the year, but its post-pandemic growth weakened sharply toward the end of the period under pressure from the war in Ukraine and record-high inflation.

Eurostat's figures, released on Friday, mean that gross domestic product was up 5.0% from a year earlier, a time when the region's economy was still laboring under the worst of the effects from the pandemic. 

Both figures were largely in line with expectations, but masked some big divergences from consensus among some of the region's biggest member states. French GDP undershot expectations to stagnate in the quarter, while German GDP rose 0.2%, defying fears that it would register a second straight quarter of negative growth, thanks to strong investment spending.

At the same time, Eurostat said that inflation in the Eurozone hit a new record high since the creation of the single currency. Consumer prices rose 7.5% in April, up from 7.4% in March. While the slower rise in the headline rate suggests that an absolute peak for inflation may be near, underlying price pressures remained strong: core CPI rose by over 1% for the second month running, and Eurostat's harmonized measure of annual inflation excluding food and energy accelerated far more than forecast to 3.9% from 3.2% last month.

The euro rose by around half a cent against the dollar in the course of the morning as national GDP data were published in advance of the Eurozone numbers. By 5:20 AM ET (0920 GMT), it was at $1.0576, up 0.8% on the day. A bounce in Chinese assets in response to promises of more economic policy support from Beijing had also helped sentiment toward the euro and to risk assets more broadly.

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GBP/JPY eases from daily high, still well bid around mid-163.00s amid the post-BoJ JPY selloff

The post-BoJ selling around the JPY provided strong boost to GBP/JPY on Thursday.

The risk-on impulse was seen as another factor that weighed on the safe-haven JPY.

Extremely overstretched conditions provided respite to the JPY and capped gains.

The GBP/JPY cross trimmed a part of its strong intraday gains to the three-day high and retreated below mid-163.00s during the first half of the European session.

The cross built on the previous day's goodish rebound from the 159.60 area, or the monthly low and caught aggressive bids on Thursday in reaction to a dovish Bank of Japan statement. As was expected, the Japanese central bank stuck to its ultra-loose policy setting and vowed to conduct daily operations to defend its “near-zero” target for 10-year bond yields.

In the post-meeting press conference, the BoJ Governor Haruhiko Kuroda said that risks to the economy are skewed to the downside for the time being and showed readiness to ease policy further if necessary. Apart from this, the risk-on impulse - as depicted by strong move up in the equity markets - weighed on the safe-haven Japanese yen and acted as a tailwind for the GBP/JPY cross.

That said, extremely overstretched conditions offered some support to the JPY amid speculations that the recent freefall in the domestic currency could trigger verbal intervention. Apart from this, the relentless US dollar buying weighed on the British pound. The combination of factors attracted some selling around the GBP/JPY cross and led to a sharp intraday pullback of nearly 100 pips.

In the absence of any major market-moving economic releases from the UK, the sentiment surrounding the Japanese currency will continue to play a key role in influencing the GBP/JPY cross. Traders will further take cues from the broader market risk sentiment to grab some short-term opportunities.

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Dollar Gains to Two-Year High on Safe Haven Flows

The U.S. dollar posted further gains in early European trade Wednesday, trading at two-year highs on safe haven flows as traders digested slowing global growth, raised geopolitical tensions, and the prospect of more tightening by the Federal Reserve.

At 3:15 AM ET (0715 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% higher at 102.532, the strongest it has been since March 2020 and on course for its best month since 2015.

Russia announced plans to halt gas flows to Poland and Bulgaria from Wednesday amid a standoff over fuel payments, to the benefit of the safe haven dollar.

Russian President Vladimir Putin has decreed that payment from “unfriendly” buyers should be in rubles, helping support his country’s beleaguered currency, while the European Union has responded that would be a breach of sanctions.

This escalation of tensions has added to the reasons traders have chosen to hold the dollar, with strict COVID-19 lockdown in China likely to hit economic growth in the world’s second largest economy while the Federal Reserve is expected to hike interest rates by 50 basis points in May as it seeks to combat inflation at a four-decade high.

EUR/USD fell 0.2% to 1.0618, dropping to a five-year low, amid fears for Europe's energy security, while the weak GfK German consumer confidence index, projected to plunge to a historic low in May, also weighed.

“April has been nasty for the euro, falling over 300 points. The Ukraine war and the hawkish Fed have been a toxic mix for the euro, as investors have dumped the currency and flocked to the safe-haven U.S. dollar,” said Kenny Fisher, an analyst at brokerage OANDA.

USD/JPY rose 0.5% to 127.81, not far removed from its recent 20-year low with the Bank of Japan set to meet overnight.

This central bank has maintained a very accommodative monetary stance, in direct contrast to the hawkish Federal Reserve, but traders see the risk of policy changes to try and arrest the currency's recent weakness.

GBP/USD edged higher to 1.2577, falling to a fresh 21-month low as last week’s weak retail sales data prompted a rethink of the Bank of England’s tightening cycle.

“Tightening expectations for the 5 May BoE meeting have dropped backed to 29bp from 38bp early last week,” said analysts at ING, in a note.

USD/CNY edged lower to 6.5555, with the yuan helped by data showing Chinese industrial profit growth quickened in March, while AUD/USD rose 0.5% to 0.7159 after Australian consumer prices surged at their fastest annual pace in two decades, spurring rate hike speculation.

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