Gold Price Forecast: Is the Santa rally shaping up for XAU/USD?

Gold rebounded firmly from near three-day lows and jumped about $20, in an eagerly-anticipated Santa rally, which eventually materialized after scientific studies worldwide revealed that the effect of the Omicron covid variant is less severe. Wall Street took the encouraging news in its stride, downing the US dollar across the board while rescuing gold bulls. Upbeat US GDP and Consumer Confidence data added to the market’s optimism. The sharp pullback in the US Treasury yields also helped gold price stage an impressive bounce. Amidst the renewed upside, gold price recaptured the $1,800 threshold and finished Wednesday near multi-day tops at $1,805.

So far this Thursday, gold is trying to build on Wednesday’s turnaround as bulls take a breather amid the risk-on market mood. Investors have turned cheerful as the realisation that the Omicron covid strain is milder limits fears its will hamper the global economic recovery. The US dollar is nursing losses while Treasury yields stabilize ahead of the US Durable Goods and PCE inflation data, which will be the last set of top-tier macro ahead of the Christmas holiday season. Thin volumes and Omicron updates will continue to impact risk trends, as well as gold price action.

Gold Price Chart - Technical outlook

Gold: Daily chart

Wednesday’s sharp gains have helped gold price recapture all the major Daily Moving Averages (DMA), underpinning the bullish sentiment.

The 14-day Relative Strength Index (RSI) is trading firmer above the midline, pointing to more upside in the making.

Bulls could retest the daily highs at $1,809, above which a fresh advance will kick in towards the December highs of $1,814.

The next critical target for bulls is seen at the $1,820 round number.

Alternatively, the 50-DMA at $1,800 is the immediate line of defense for gold buyers, below which hopes are stacked up at the 200-DMA of $1,796.

If the sellers remain in complete control, then additional downside could open up towards the 100-DMA at $1,788, which is a line in the sand for gold optimists.