• The yellow metal dropped against the greenback amid rising bets on Fed’s tightening policy.
• Preliminary estimate of the US CPI may bring more uncertainty to the market.
• Ukraine uncertainty favors the safe haven gold.

Gold dropped against the US dollar during Friday trading session since the US dollar strength backed by prospects of aggressive interest rate hikes by the U.S. Federal Reserve which partially offsets the safe-haven demand fuelled by the heightened Russia-Ukraine conflict.

The greenback is trading high on hawkish stance by a slew of Fed Policymakers who have called for a faster pace of interest rate increases to curb rapid inflation. A stronger. The benchmark U.S. 10-year Treasury yield touched a three-year high in the previous session, increasing the opportunity cost of holding non-yielding bullion.

Minutes of the Fed’s March 15-16 meeting showed deepening concern among policymakers that inflation had broadened through the economy, with many participants prepared to raise rates in 50-basis-point increments in coming months.

A preliminary estimate of the yearly US Consumer Price Index (CPI) at 6.6%, which will release next week, is evidence for the soaring inflation. Federal Open Market Committee (FOMC) members have narrated the neutral rate at 2.4% at which demand will not dampen and growth will not de-escalate. To shift the current interest rates to the neutral rate, the Fed has already announced one or more interest rate hikes by 50 basis points (bps) out of the six interest rate hikes to be announced this year. Thus favoring the gold.

However, Gold is being supported by the Ukraine uncertainty, which caps the USD bulls. The US has widened its actions against Moscow, hitting Russian Sberbank and Alfa Bank and prohibiting investment in the country by American companies. The EU, in the meantime, backed a Russian coal embargo, although without officially confirming it. On Thursday, Ukraine has presented a new agreement proposal, although it includes discussing the situation of Crimea and Donbass, something that Russia considers unacceptable.

XAU/USD 4 Hour Chart:

Support: 1920.7 (S1), 1911.7 (S2), 1903.2 (S3).

Resistance: 1938.3 (R1), 1946.9 (R2), 1955.9 (R3).

The prospects of aggressive rate hike from the Fed favors the US dollar, we expect a bearish trend for XAU/USD.