Gold's retreat from record highs has not diminished the ranks of its fans. According to BCA Research models, the precious metal should already be trading at $2,200 per ounce, as the dollar is overvalued by 20%. Citi predicts prices will rise to $2,400, citing strong demand for physical assets and the weakening of the Federal Reserve's monetary policy. However, for now, XAU/USD is preparing for the release of inflation data.

When will central banks' appetite for gold wane? Despite a slowdown in purchases in the first quarter, the figure remains high by historical standards. China has been increasing its gold reserves for the 6th consecutive month and has brought them to 2,076 tons. Singapore and Turkey are also showing increased activity.

Dynamics of central banks' gold purchases

Nature abhors a vacuum. Even if central banks' interest in gold cools down, they can be replaced by ETFs. After an 11-month outflow, specialized fund reserves began to grow in March and continue to do so. Investment demand for precious metals is indeed high. The U.S. dollar is another matter.

Thanks to a strong U.S. employment report, the USD index rose from the ashes. Recession risks have decreased, and the likelihood of a "dovish" Fed pivot in 2023 has diminished. According to New York Fed President John Williams, there is no basis for a rate cut in 2023. At the same time, the central bank did not say that it had finished tightening monetary policy. Retreat from recession fears leads to an increase in Treasury bond yields and a correction in XAU/USD.

Dynamics of gold and U.S. Treasury bond yields

Gold continues to be supported by the banking crisis and the debt ceiling story. According to U.S. Treasury Secretary Janet Yellen, if the latter issue is not resolved, it will lead to a default and have catastrophic consequences for the economy and financial markets. However, investors still expect Democrats and Republicans to reach a consensus on a falling flag.

As for the banking crisis, the market breathed a sigh of relief after the Credit Officers' Report. The share of respondents tightening lending conditions increased slightly in the first quarter. At the same time, demand for borrowed funds from companies and households continues to decline.

In the short term, the fate of XAU/USD will depend on the U.S. inflation data for April. In theory, a slowdown in consumer prices to 4.9% and below will indicate that the Fed's monetary tightening cycle is over. This will support gold. On the other hand, it will reduce recession risks, which is negative for precious metals.

Technically, on the daily gold chart, an Anti-Turtles reversal pattern may be formed. At the same time, a drop in quotes below the upper range of the fair value range of $1,980–$2,025 per ounce and the low of the inside bar at $2,013 will be reasons to sell. Conversely, breaking the pivot level at $2,042 will be a signal to buy.