Gold Price Forecast: XAU/USD sits in bullish territory near $1,850 key level

• Gold prices remain mildly bid after piercing yearly resistance, 13-day-old rising channel eyed.
• Downbeat yields, fears of Fed rate hike join Ukraine-Russia tussles to underpin gold’s safe-haven demand.
• IMF’s downbeat economic growth forecasts also sour the mood.
• Fed January Preview: Three possible scenarios for gold

Update: Gold (XAU/USD) holds in the bullish territory near to the psychological $1,850 level as markets await in anticipation of a significant outcome from the Federal Reserve in today's New York mid-day session. The US dollar, on the other hand, has been pressured back to test the resilience of the 96 figure in the DXY, an index that measures the greenback against a handful of major currencies. 

There are a number of factors playing into the bearish case for the US dollar, from a a less hawkish outcome at the Fed, month-end and the absence of the bond market's expectation for a super-fast cycle of Fed interest rate hikes. This was evident in Tuesday's 5-year Treasury auction. 

The bid-to-cover ratio was high, as was the yield with the US selling 5-year notes at 1.533% vs WI 1.547% on a $55 billion sale. That was the highest yield since October 2019. The prior was 1.263% and the bid to cover at 2.50 vs 2.41 prior. This indicates that the market could be pricing the Fed too hawkish for the medium term which has weighed down the US dollar. 

As for the Fed, ''a likely hike in the funds rate in March has been well communicated, so a "prepare for liftoff" signal should not be market-moving. More important will be any guidance on the likely pace of tightening, via QT as well as the funds rate, in the year/years ahead,'' analysts at TD Securities argued.

End of update

Gold (XAU/USD) struggles to extend early gains around $1,850 as markets brace for the key Fed verdict during Wednesday’s Asian session.

The yellow metal rose during the last two consecutive days, also crossed the key hurdle to the north the previous day, as traders rushed to traditional risk-safety amid the market’s anxiety over the US Federal Reserve’s (Fed) next step. Adding to the bullish impulse could be geopolitical tensions and downbeat economic forecasts by the International Monetary Fund (IMF).

The Fed hawks ignored softer US CB Consumer Confidence and Richmond Fed Manufacturing Index figures on firmer US inflation expectations, per the 10-year, breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, which in turn favored gold buyers. The inflation gauge rose for the third consecutive day on Tuesday after declining to the lowest since September on January 20.

Elsewhere, the US, the UK and European Union (EU) are determined to levy economic sanctions on Russia if it invades Ukraine, which in turn keeps geopolitical fears on the table.

Furthermore, the IMF No. 2 official Gita Gopinath conveyed downbeat economic forecasts the previous day as Omicron spreads. “We project global growth this year at 4.4%, 0.5 percentage point lower than previously forecast, mainly because of downgrades for the United States and China,” said IMF’s Gopinath per Reuters.

Additionally, the recent passage of the America COMPETES Act offers extra support to the gold prices amid fears of escalating US-China tussles.

While portraying the mood, the US Treasury yields remain on the back foot while the S& 500 Futures print mild gains at the latest. That said, Wall Street printed losses and the US Dollar Index (DXY) rose the previous day.

Moving on, gold buyers keep their eyes on the Fed’s verdict amid increasing hopes of witnessing March rate hike clues. It should, however, be noted that the recent doubts over the monetary policy tightening amid Omicron spread may push Powell to sound cautiously optimistic, which in turn could propel the gold’s upside, by taking the USD.

Technical analysis

A daily closing beyond a one-year-old resistance, now support around $1,846, keeps gold buyers hopeful of further advances towards the November 2021 peak of $1,877.

The bullish bias also takes clues from the upbeat RSI line, not overbought, as well as the metal’s rejection to ‘Death Cross”, a moving average bearish crossover.

Gold: Daily chart

Details on the short-term chart, however, need validation from an upper line of a two-week-old rising channel, near $1,856, to offer a warm welcome to gold buyers.

It’s worth noting that gold’s pullback moves remain less worrisome until staying beyond the 100-SMA level of $1,819.

That said, the previous resistance line from late November and 50-SMA level, respectively around $1,843 and $1,830, may act as immediate support ahead of highlighting the stated channel’s lower line near $1,823.

Gold: Four-hour chart

Overall, Gold prices have already crossed the key hurdle to the north but need to convince bulls.