Gold price forecast as the bulls eye a critical zone

Gold price has eased from Monday’s five-week high amid a strong US dollar and rising Treasury yields. Indeed, the two factors have placed a lid on the precious metal’s upward potential.

Fundamentals

Earlier on Tuesday, the dollar index reached a fresh one-year high of $101.05 before easing to $100.87 as at 11:48 a.m GMT. Notably, the psychological zone of $100 remains a crucial one for the third week in a row. Since the beginning of April, it has surged by over 3% amid inflation concerns and prospects of rate hikes. A stronger greenback tends to make gold and other commodities more expensive for buyers holding other currencies.

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Higher Treasury yields have further boosted the greenback while curbing gold price’s upward potential. The benchmark 10-year yields is trading at its highest level since December 2018 for the second session in a row at 2.88%. Higher US bond yields usually increase the opportunity cost of holding the non-yielding asset.

Even with the recorded pullback, gold price is set to remain on a bullish trend that is founded on its status as a hedge against inflation and safe haven. During an interview with Bloomberg Markets on Monday, St. Louis Fed President, Jim Bullard stated that a hike of 75 basis points cannot be dismissed. However, he added that his base case remains at 50 basis points as the US central bank strives to ease inflation, which is currently at a four-decade high.

Besides, investors tend to seek safety in precious metals in times of economic or political uncertainties. Indeed, the ongoing Russia-Ukraine war has heightened the demand for gold and other safe havens.

On Sunday, Russia’s Defense Ministry announced that it had attacked an ammunition factory close to Kyiv. Besides, stalemate in talks between the two countries led to the closure of humanitarian corridors on Sunday. As such, about 100,000 civilians are trapped in Ukraine’s southeastern region of Mariupol.

Gold price forecast

Since the beginning of April, gold price has been in the green for nine out of thirteen trading sessions. Indeed, in the past week, it extended its gains; holding steady above the crucial level of 1,950. As at the time of writing, it was at 1,977.67 after pulling back from the five-week high of 1,999.03 it hit on Monday.

On a daily chart, the precious metal remains above the 25 and 50-day exponential moving averages. Based on both the technicals and fundamentals, I hold a bullish outlook. As the week progresses, the bulls will likely retest the week’s high to hit the psychological zone of 2,000. Indeed, I expect this crucial zone to be a crucial resistance level for gold price in the short term.

Earlier in March, it rose to 2,071.32; less than $5 short of the all-time high it hit in August 2020 at 2,075.38. Even with the rallying expected in the ensuing sessions, March’s high will likely remain evasive. In particular, it may find resistance at 2,014.53. On the lower side, the 25-day EMA at 1,950 will be a support zone worth looking out for. Below that level, the 50-day EMA at 1,925.28 will remain a steady support level.