Gold Price Forecast: Cautiously Optimistic Amid Peaking Inflation

Summary:
• What is the outlook of the gold price? We explain what to expect now that inflation seems to be peaking? We explain what to expect.

Gold price is holding steady even as the Fed plans for a more aggressive monetary policy. The metal is trading at $1,973, about 4.35% above the lowest level in March. Other precious metals like silver, platinum, and palladium have also held steady in the past few days. This performance has mirrored that of US equities.

More hawkish Federal Reserve

The Federal Reserve has embraced a more hawkish tone as the American inflation surges in the past few months. Data published this week showed that the country’s inflation jumped to a 40-year high of 8.5%. This increase was better than what most analysts were expecting. However, a closer look at the report showed signs that inflation is peaking. For example, the core CPI dropped to the lowest level since August on a month-on-month basis. 

On a note, analysts at ING warned that the downward trend will be a significantly slow process. They also warned that the Fed will need to aggressively hike interest rates, although doing that risked plunging the US into a recession. The statement said:

Unfortunately, the descent will be long and slow given lingering supply chain issues, significant tightness in the labour market, and ongoing corporate pricing power.”

Gold price is also rising as central banks sell their holdings. Data published by the World Gold Council showed that central bank gold reserves have been falling this year. This selling was driven by Kazakhstan, which has been selling its gold for a while now. The Russian central bank is also seeking to sell some of its gold now that its foreign currency has been sanctioned. Still, in the long-term, analysts expect that gold purchases by central banks will be strong as they move away from the US dollar and euro.

Gold price prediction

The four-hour chart shows that the XAU price has been in a strong bullish trend lately. Along the way, the metal’s price managed to move above the key resistance level at $1,965, which was the highest level on March 22. In addition, it has moved slightly above the 25-period and 50-period moving averages. It is also above the ascending trendline shown in yellow.

Therefore, there is a likelihood that the gold price will continue rising as bulls target the next key resistance level at $2,000. A drop below the support at $1,950 will invalidate the bullish view.