Gold Price Forecast: XAU/USD moves away from three-week low, remains below $1,800

Update: Gold gained some positive traction during the early part of the trading action on Wednesday and moved away from a near three-week low touched the previous day. The XAU/USD maintained its bid tone heading into the European session and was last seen trading just below the $1,800 round-figure mark. Concerns over the rising number of COVID-19 cases in Europe and the reimposition of lockdown measures turned out to be a key factor that extended some support to the safe-haven precious metal. Apart from this, retreating US Treasury bond yields further benefitted the non-yielding yellow metal, though hawkish Fed expectations and a stronger US dollar kept a lid on any further gains.

The markets have been pricing in the possibility for an eventual Fed rate hike move by July 2022 amid worries about stubbornly high inflationary pressure. Moreover, the Fed funds futures indicate a high likelihood of another raise by November. The market bets were boosted further after Jerome Powell renomination to the role of Federal Reserve chair on Monday. Growing market acceptance about the prospects for an early policy tightening by the Fed assisted the USD to hold steady near a 16-month peak. This, in turn, should act as a headwind for the dollar-denominated gold, warranting some caution for bullish traders. Hence, it will be prudent to wait for a strong follow-through buying before confirming that the recent pullback from the $1,877 area, or a multi-month high touched last week, has run its course.

Previous update: Gold (XAU/USD) seesaws around a three-week low, near $1,790 at the latest, following a four-day downtrend that dragged the quote below the 200-DMA. That said, firmer yields and hopes of a Fed rate hike weigh on the metal prices despite the latest inaction during early Wednesday’s Asian session.

US President Joe Biden’s nominations for the Federal Reserve’s (Fed) Chairman and Vice-Chair’s post boosted the market’s morale for the rate hike. The same helped the US 10-year Treasury yields and the US Dollar Index (DXY) to refresh the multi-day top. Also favoring the bond yields and the greenback was the US inflation expectations and concerns over the fresh covid wave in the Eurozone.

Given the cautiously optimistic view of Powell and Clarida over monetary policy tightening, hopes of the Fed’s faster rush towards the rate hikes gained additional support, which in turn favored yields and the DXY. However, mixed US PMIs triggered the gold’s bounce afterward.

US Markit PMIs flashed mixed numbers for November as the Manufacturing activity gauge rose past expectations and prior but not the Services index, which in turn weighed on the Composite figures. Additionally, US Richmond Fed Manufacturing Index crossed the expected figure of 5 but stayed below 12 previous readouts to 11 for November.

Even so, US inflation expectations, as measured by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, rebound from a two-week low to 2.62% by the end of Tuesday’s North American session.

Amid these plays, US 10-year Treasury yields ran higher towards the yearly top marked in October, up five basis points (bps) to 1.676% whereas the DXY refreshed 16-month top to 96.61 before closing around 96.50. It’s worth noting that the Wall Street benchmarks closed mixed and the S&P 500 Futures print mild losses by the press time.

Looking forward, a busy economic calendar before Thursday’s Thanksgiving Day holiday will keep the gold traders equipped but the bears are likely to hold the reins. Among the key catalysts, October Durable Goods Orders, the second estimate of the Q3 Gross Domestic Product, the latest FOMC Meeting Minutes and October core PCE inflation are crucial.

Technical analysis

Gold bears keep reins below 200-DMA amid the strongest bearish MACD signals in two months, suggesting further downside targeting an upward sloping support line from late September around $1,780.

However, the 61.8% Fibonacci retracement (Fibo.) of August-November upside and a trend line support from early August, respectively $1,760 and $1,755, may challenge the gold bears afterward as the RSI line drops toward the oversold territory at a faster pace.

Meanwhile, corrective pullback needs to stay beyond the 200-DMA level of $1,792, also crossing the 38.2% Fibo. near $1,805, to convince short-term buyers.

Even so, tops marked in July and September around $1,834 offer a tough nut to crack for gold bulls.

Gold: Daily chart

Trend: Further weakness expected