Gold Price Forecast: Bullion Clears April Low Ahead of Fed Rate Hike

Gold Price Talking Points

The price of gold clears the April low ($1872) after showing a limited reaction to the slowdown in the US Personal Consumption Expenditure (PCE) Price Index, and the Federal Reserve interest rate decision may keep the precious metal under pressure as the central bank is widely expected to deliver a 50bp rate hike.

Gold Price Forecast: Bullion Clears April Low Ahead of Fed Rate Hike

The price of gold approaches the 200-Day SMA ($1835) after snapping the March range, with the former resistance zone around the November high ($1877) failing to offer supportas longer-dated US Treasury yields push to fresh yearly highs.

As a result, the Federal Open Market Committee (FOMC) rate decision on May 4 may sway the near-term outlook for gold as the central bank is anticipated to normalize monetary policy at a faster pace, and it remains to be seen if Chairman Jerome Powell and Co. will adjust the exit strategy as the committee looks to embark on quantitative tightening (QT) in 2022.

In turn, the FOMC rate decision may keep the price of gold under pressure if the central bank delivers a 50bp rate hike along with plans of winding down the balance sheet, and it seems as though the deterioration in risk appetite will do little to prop up the precious metal as the Fed takes additional steps to tame inflation.

With that said, the price of gold may face a further decline over the coming days as the former resistance zone around the November high ($1877) fails to act as support, and looming developments in the Relative Strength Index (RSI) may show the bearish momentum gathering pace as the oscillator is on the cusp of pushing into oversold territory for the first time since August.

Gold Price Daily Chart

Source: Trading View

• The price of gold cleared the March low ($1890) as it trades below the 50-Day SMA ($1940) for the first time since February, with the precious metal taking out the April low ($1872) amid the failed attempt to push back above the Fibonacci overlap around $1916 (38.2% expansion) to $1929 (23.6% retracement).
• The Relative Strength Index (RSI) approaches oversold territory for the first time in 2022 as the former resistance zone around the November high ($1877) does little to offer support, with a move below 30 in the oscillator likely to be accompanied by a further decline in the price of gold like the behavior seen during the previous year.
• Lack of momentum to hold above the $1859 (23.6% retracement) area may push the price of gold towards the $1837 (38.2% retracement) to $1847 (100% expansion) region, with a move below the 200-Day SMA ($1835) opening up the overlap around $1816 (61.8% expansion) to $1829 (38.2% expansion).

— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong