Gold Price Forecast: Bulls take on the 50% mean reversion target

• Gold rallies to a 50% mean reversion level as the US dollar slides.
• Markets are looking to the Fed for direction, steering the greenback on Wednesday. 

The price of gold is over 1% higher on Wednesday as the bulls take advantage of a weaker US dollar. XAU/USD has climbed from a low of $1,804.58 to a high of $1,829.88.

The greenback was lower despite the prior day’s huge inflation data beat because the Federal Reserve Chair Jerome Powell told Congress the US economy was “still a ways off” from levels the central bank wanted to see before tapering its monetary support.

A day earlier, data showed June US inflation hit its highest in more than 13 years.

Additionally, in other data, the US producer prices also rose more than expected, posting their largest annual increase in more than 10-1/2 years.

Meanwhile, the US dollar remains below its three-month high, near 93.50, albeit capped below 92.80 daily resistance. 

Moreover, markets are still not convinced that the Fed is wrong which is weighing on the greenback.

Fed Powell, at the beginning of his two-day testimony to Congress, said the Fed is firm in its belief that current price increases are tied to the economic reopening and are transitory.

”While the Fed’s hawkish tilt may have removed the immediate impetus for speculators to buy gold, Chinese funds have been buying the dip, with physical purchases also supporting the yellow metal just as it flirted with its pandemic-era uptrend support,” analysts at TD Securities argued.

”Meanwhile, gold’s breakout from its recent trading range may be attracting some interest from technicians. However, we note that mean-reversion indicators have outperformed momentum signals over the past 60 days,” the analysts added. 

”Overall, while the benign positioning slate in precious metals continues to form a set-up that should eventually serve as a catalyst for higher prices, this breakout may only be pointing to skewed flows for the time being.’

Gold technical analysis

The price of gold has rallied beyond the 38.2% Fibonacci of the prior daily impulse to a 50% mean reversion as follows:

This could lead to a restest of the prior highs as the newly formed support structure prior to an onwards journey to the 61.8% Fibo just below $1,850.