Gold Price Forecast: XAU/USD falls, but rallies on dip buying

• Gold rebounds strongly after falling on a less than forecast increase in jobless claims.
• XAU/USD resumes the sharp rally started by the Federal Reserve on Wednesday.
• The bullish technical trend remains strong and supports a continuation to the upside.

The XAU/USD pair has rallied on the back of buying positions after the release of initial jobless claims data, which showed that the number of Americans filing for unemployment benefits is lower than expected by experts, causing a hard fall. Currently, the pair is trading higher and stands at $1,982.

The price of gold shot up after the March FOMC meeting, held on Wednesday. The mineral beloved by King Midas of Phrygia rose after the US Federal Reserve (Fed) suggested that tightening credit conditions due to banking stress could do the job of lowering inflation on his behalf. . Therefore, the Bank probably would not have to raise rates as much as expected in the future.

Gold rose as lower interest rate expectations are seen as bullish on the metal as it offers no return to its holders, unlike cash (deposits) or cash equivalents.

XAU/USD falls on labor market data

The XAU/USD pair fell after the release of better-than-expected labor market data on Thursday.

Initial jobless claims for the week ending March 17 showed a lower-than-expected increase in the number of Americans filing for jobless benefits, which stood at 1.694 million, versus the 1.701 million expected. The data suggests that the labor market is stronger than economists anticipated, which could mean upward pressure on inflation, and the possibility that the Federal Reserve may have to raise rates more aggressively than the forecast might suggest. Dovish FOMC interpretation on Wednesday.

Gold News: Modest Fed Hike

At its FOMC meeting on Wednesday, March 22, the US Federal Reserve raised the federal funds rate by a quarter of a percentage point to a target range of 4.75%-5.00%, in line with expectations from the market, raising the basic interest rate at which banks lend to each other.

Although this would normally have been expected to be bearish for the gold price, markets had already priced it in as a base case.

However, the Federal Reserve’s Summary of Economic Projections (SEP), released at the same time as the decision, showed a lower rate hike path than before. The Fed now forecasts a terminal rate of just 5.10%, just above the current range, and it was this that started to push the price of gold higher.

Furthermore, Federal Reserve Chairman Jerome Powell stated in the post-meeting press conference that the Fed may not need to raise rates as much as expected because the credit crunch caused by the banking crisis would make the I work for them. This pushed gold even higher.

“The possible tightening of credit conditions could mean that monetary tightening has less work to do,” Powell said.

Gold Price Technical Analysis

4 hour chart

Since “the trend is your friend”, the odds support a continuation to the upside, with a break above the previous bar’s high of $1,984 confirming an extension.

The bottom of the trend line that has just been broken is likely to present an initial target and resistance at $1,991 and the price of gold is likely to pull back to that level, however an eventual rally to the yearly highs at $2,009 is very possible.

According to Dhwani Mehta, Senior Analyst at FXStreet, XAU/USD is forming a bullish continuation pattern and is ready to recapture $2,000. A daily candle breaking above the downtrend line resistance at $1,975 would be needed to validate the pattern.

“A break to the upside will require a test of Tuesday’s high at $1,985, above which the $2,000 round figure will be challenged.”

“On the other hand, if gold bulls fail to hold higher, any pullback could trigger the intraday low at $1,965, below which static support at $1,960 will be threatened. Deeper declines will expose the $1,950 demand zone, opening the door for a test of the downtrend line support at $1,926,” adds Mehta.