Gold Price Forecast: XAU/USD bulls eye $2,040 as US Dollar drops ahead of inflation data, Fed Minutes

• Gold price extends week-start rebound from 10-DMA to approach multi-day-old resistance line.
• Mostly downbeat Fed talks, market’s cautious optimism exert downside pressure on US Dollar and propel XAU/USD price.
• Softer US CPI, lack of clear guidance in FOMC Minutes can allow Gold buyers to keep the reins.

Gold price (XAU/USD) marches to $2,021 as it stretches the previous day’s run-up amid broad-based US Dollar weakness heading into Wednesday’s European session. In doing so, the XUA/USD also cheers the market’s hopes of easing inflation and less aggressive monetary policy from the US Federal Reserve (Fed). That said, traders await the US Consumer Price Index (CPI) for March and the Minutes of the latest Federal Open Market Committee (FOMC) Monetary Policy Meeting to gain major attention.

US Dollar Index (DXY) drops for the second consecutive day in the last six as market players curtail hawkish bets on the Fed’s 0.25% rate hike in May. As per the latest readings of the CME’s FedWatch Tool, market players place nearly 70% bets on the US central bank’s 25 basis points (bps) rate hike in May versus 72% expected the previous day.

Behind the traders’ recent easing of hawkish Fed bets are comments from key Federal Reserve (Fed) officials. Notable among them are Philadelphia Fed President Patrick Harker, New York Fed President John Williams and Chicago Fed President Austan Goolsbee.

Apart from the Fed talks, optimism surrounding China, one of the world’s largest Gold consumers, also propel the XAU/USD price. Early in Asia, IMF's Asia-Pacific Chief Krishna Srinivasan said that China rebounded much faster than anticipated, per Bloomberg.

It’s worth noting, however, that Minneapolis Fed President Neel Kashkari mentioned that he is less optimistic than the bond market on the speed of inflation's fall and challenge the US Dollar bears, especially after Friday’s upbeat US Nonfarm Payrolls (NFP). On the same line are the US inflation expectations, as per the 10-year and 5-year breakeven inflation rates from the St. Louis Federal Reserve (FRED) data, which renewed a one-week high the previous day.

Against this backdrop, S&P 500 Futures remain directionless around 4,138 after a mixed Wall Street close. Further, the US Treasury bond yields grind higher and prod the US Dollar sellers. That said, the US 10-year and two-year Treasury bond yields grind higher around 3.44% and 4.05% during a four-day and five-day uptrend respectively.

Looking forward, Gold buyers need softer US inflation numbers and an absence of future rate guidance from the Fed policymakers, per the FOMC minutes. If not, then the XAU/USD may portray another pullback from the key resistance line.

Gold price technical analysis

Gold price reverses the previous week’s pullback from an 11-week-old ascending resistance line as it bounces off the 10-DMA support.

The precious metal’s recovery also takes clues from the upbeat RSI (14), not overbought, while paying little heed to the sluggish MACD signals.

With this, the XAU/USD is well-set to poke the multi-day-old resistance line, around $2,038 by the press time. However, the RSI may turn overbought at that level and can challenge the Gold buyers afterward.

If not then, a gradual run-up toward the previous yearly high of around $2,070 can’t be ruled out.

Alternatively, a downside break of the 10-DMA support level of $1,996 isn’t an open invitation to the Gold sellers as an upward-sloping support line from March 22 joins a two-month-old horizontal line to highlight $1,960-57 zone as a tough nut to crack for the XAU/USD bears.

Overall, the Gold price is likely to remain firmer even if the upside room appears limited.

Gold price: Daily chart

Trend: Limited upside expected