Gold Price Forecast: XAU/USD bearish bias remains while below $2,040-$2,042 supply zone

Gold price (XAU/USD) kicks off the new week on a weaker note and erodes a part of its recovery gains registered over the past two trading days, from the vicinity of the $2,000 psychological mark, or over a one-month low touched last Wednesday. That said, the mixed fundamental backdrop warrants some caution before placing aggressive directional bets ahead of this week's important macro data from the United States (US). The Advance fourth-quarter economic growth figures are due for release on Thursday, followed by the Federal Reserve's (Fed) preferred inflation gauge on Friday, which should provide some meaningful impetus heading into the FOMC meeting on January 30-31.

In the meantime, investors continue to scale back their expectations for a more aggressive policy easing by the Fed in 2024 amid a still-resilient US economy. In fact, the University of Michigan’s preliminary survey showed on Friday that the Consumer Sentiment Index shot to its highest level since July 2021 and rose 9.1 points to 78.8 in January from 69.7 in the previous month. Over the last two months, the index has climbed a cumulative 29% – the largest two-month increase since 1991 – amid confidence that inflation has turned a corner and strengthening income expectations. This comes on top of the upbeat US Retail Sales and labor market report released last week, suggesting that the economy is in good shape.

Adding to this, the recent hawkish comments by Fed officials forced investors to further scale back their expectations for a more aggressive policy easing in 2024 and turn out to be a key factor driving flows away from the non-yielding Gold price. That said, the risk of a further escalation of geopolitical tensions in the Middle East might hold back bearish traders from placing fresh bets around the safe-haven precious metal and help limit deeper losses. In the latest development, US Central Command forces continued preemptive strikes and launched an attack on a Houthi anti-ship missile over the weekend – its seventh round of strikes since the Iran-backed rebel group began targeting merchant vessels in the Red Sea.

In the absence of any relevant market-moving economic data, geopolitical risks make it prudent to wait for strong follow-through selling before positioning for the resumption of the recent downtrend from the December monthly swing high.

Technical Outlook

From a technical perspective, weakness below the $2,022-2,020 area could extend further and drag the Gold price back towards the $2,000 psychological mark, or over a one-month low touched last week. The latter should act as a key pivotal point, which if broken decisively could make the XAU/USD vulnerable. The next relevant support is pegged near the $1,988 area ahead of the 100-day Simple Moving Average (SMA), currently around the $1,972 area and the 200-day SMA, near the $1,964-1,963 region.

On the flip side, Friday's swing high, around the $2,040-2,042 supply zone, might continue to act as an immediate strong barrier. A sustained strength beyond could trigger a short-covering rally and lift the XAU/USD towards the $2,077 area. The upward trajectory could extend further and allow bulls to reclaim the $2,100 round-figure mark.

Gold daily chart