Gold Price Forecast: XAU/USD could take a breather before recapturing $1,900

• Gold price extends rally to eight-month highs at $1,880 amid persistent US Dollar weakness.
• Hopes of a dovish US Federal Reserve pivot weigh on the US Treasury bond yields.
• Gold price achieved a falling wedge target on the 4H chart; what next?

Gold price is consolidating the two-day uptrend near the highest level in eight months at $1,880 this Monday. The United States Dollar (USD) is extending its bearish momentum with sluggish US Treasury bond yields following Friday’s critical US economic data.

United States Nonfarm Payrolls fuel Federal Reserve pivot hopes

The US Dollar remains heavily sold off at the start of the week, helping Gold bulls to flex their muscles to levels unseen since May 2022. The extended weakness in the US Dollar could be mainly associated with resurfacing expectations of a dovish US Federal Reserve (Fed) pivot this year in the face of a healthy labor market and cooling wages in the United States. The US Nonfarm Payrolls data released on Friday served as a perfect recipe for Gold buyers to cement their hold, as the United States economy added 223K jobs in December vs. 200K expected. But hopes that moderation in wage gains could allow Federal Reserve officials to take a pause in their tightening cycle boosted Gold price and global stocks at the expense of the US Dollar and the US Treasury bond yields. Further, a contraction in the United States services sector activity in December exacerbated the pain in the US Dollar.

However, recent mixed speeches from Federal Reserve policymakers seem to have capped the upside in the Gold price for now. Chicago Fed President Charles Evans said in a Wall Street Journal (WSJ) interview, “it was possible the economic data would support raising the policy rate by 25 basis points at the Fed's next gathering.” Atlanta Fed President Raphael Bostic said on Friday, the United States economy is definitely slowing.” Meanwhile, Kansas City Fed Chief Esther George said that she expects the Fed funds rate to hold above 5.0% in 2024 while dismissing a recession because of the Federal Reserve’s policies.

China news boosts risk and Gold price, downs the US Dollar

With expectations of the dovish Federal Reserve pivot back on the table, investors are also cheering the full reopening of the Chinese economy. “After three years, mainland China opened sea and land crossings with Hong Kong and ended a requirement for incoming travelers to quarantine, dismantling a final pillar of a zero-COVID policy that had shielded China's 1.4 billion people from the virus but also cut them off from the rest of the world,” Reuters reported. The risk-on market environment added to the US Dollar’s misery, propelling Gold price back toward the $1,900 mark.

Gold price also received a fresh boost from news that the People’s Bank of China (PBOC) announced an increase in its Gold holdings by 30 tonnes in December to 2,010. In November, the People’s Bank of China bumped up its Gold reserves by 32 tonnes, the first boost since September 2019.

In the day ahead, the Federal Reserve expectations will continue to drive risk sentiment and the US Dollar price action, eventually impacting Gold price.

Gold price technical analysis: Four-hour chart

Gold price has paused its advance, as the Relative Strength Index (RSI) is flirting with the overbought territory, warranting caution for bulls.

A retreat toward the $1,865 support could be in the offing before the Gold price resumes its upward trajectory toward the $1,900 mark. Gold bulls have achieved the falling wedge target at $1,877, allowing them to take a breather.

Recapturing the multi-month high at $1,880 is critical to targeting $1,900 once again. Daily closing above the latter is needed to extend the bullish reversal.

Alternatively, if Gold sellers take out the abovementioned support at $1,865, then a fresh drop toward the bullish 21-Simple Moving Average (SMA) at $1,853 cannot be ruled out.