Gold price forecast: levels to watch with Fed interest rate decision in focus

Gold price ended the week in the green after US inflation data boosted its viability as a hedge against inflation. Even so, a strong US dollar and rising Treasury yields will likely curb its gains in the new week. As at the time of writing, the dollar index was at a four-week high of $104.18. Subsequently, gold price lacked enough momentum to break the resistance at $1,877. In the new week, the focus will be on the Fed interest rate decision.

Fundamentals

Data released by the US Labor Department in mid-April showed that US consumer prices rose to a four-decade high of 8.5% YoY in March. Subsequently, heightened concerns that the economy may be headed for a recession boosted gold price to less than a dollar shy of the psychologically critical level of $2,000 per ounce.

However, it dropped below the previously steady support zone of $1,800 in mid-May amid hopes that inflation had peaked. Indeed, April’s CPI of 8.3% improved the risk sentiment while lowering the demand for gold; both as a safe haven and hedge against inflation.

Notably, the inflation data released on Friday has reversed the mood in the market. According to the US Labor Department, the CPI rose by 8.6% from a year earlier. The figure, which is a fresh 40-year high dwindled hopes that inflation was beginning to ebb.

As a reaction to the inflation data, the risk-on assets like stocks dropped as the demand for gold and other safe havens rose. The Dow Jones Industrial Average extended its losses to end the week at a two-week low of $31,392.80. S&P 500 was also down by 2.91% at $3,900.85.

Investors are now keen on the Fed interest rate decision scheduled for release on Wednesday. The Fed is keen on dealing with the heightened inflationary pressures through an aggressive monetary policy without pushing the US economy into a recession. Notably, an environment of high interest rates weighs on gold price.

Gold price technical analysis

In the new week, the resistance level of $1,877 will be worth watching. As the market digests the fresh 40-year high inflation, gold price may continue to trade above the critical zone of $1,850. Even so, a strong US dollar and surge in Treasury yields may curb its gains. With that, the bulls may have an opportunity to push the price to $1,893.83 before pulling back to around $1,870. On the flip side, a decline past $1,850 will have the bulls defend the support zone of 1,840.30.