Gold price forecast as BOJ bond purchases strengthens US dollar

Gold price has begun the new week in the red amid a strengthening US dollar. The BOJ’s second offer to purchase unlimited bonds has boosted the greenback.  

Strong US dollar

As is the case with other commodities, the precious metal usually has an inverse correlation with the value of the US dollar. As at the time of writing, the dollar index, which tracks the value of the greenback against a basket of six currencies, was at $99.25. At that level, it is less than a dollar below the 2-year high hit earlier in March.

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The US dollar has continued to find support in the rising Treasury yields. The benchmark 10-year US bond yields extended last week’s gains to a three-year high of 2.56% earlier on Monday. Granted, it has since eased to 2.46%.

On Monday, the Bank of Japan (BOJ) made the second offer in less than 2 months to purchase unlimited 10-year Japanese government bonds. The central bank seeks to defend the 0.25% ceiling that is in line with its yield target. The move by BOJ strengthened the US dollar while weighing on the precious metal.

As the week progresses, gold price will also be reacting to US jobs and inflation data. Nonfarm payrolls numbers on Friday and PCE index on Thursday are some of the key figures to look out for. The ongoing talks on the Fed being aggressive in dealing with inflation will likely curb the precious metal’s upward potential. However, a stalemate in the face-to-face Russia-Ukraine talks in the course of the week may boost the bullion’s value.

Gold price forecast

On a daily chart, gold price is hovering around the 25-day EMA at 1,932.22. As at the time of writing, it was at 1,932.24; having dropped from an intraday low of 1,960.12. Despite the decline, it is still above the 50-day EMA.

As the week progresses, the psychological zone of 1,900 will be a critical one as the market reacts to Russia-Ukraine talks, expected US inflation and jobs data, and the value of the US dollar. If the released figures support the Fed’s aggressive tone on dealing with inflation, the bulls will be defending the support at 1,900 as the US dollar strengthens further.

Coupled with breakthrough in the Russia-Ukraine talks, gold price may drop further to 1,871.60. On the flip side, increased safe-haven demand may yield a bounce back to find resistance at 1,967.82.