Gold Price Forecast: XAU/USD downtrend continues ahead of US Consumer Confidence

• Gold price stays in bearish mode, approaching $1,800 psychological support.
• US Dollar stays dominant across the board as US macroeconomic data keeps beating expectations.
• ISM Manufacturing and Services PMI releases headline a mid-tier economic data week.

Gold price is back on the bear trail on Tuesday as the US Dollar re-gathers its strength across the market board. The bright metal is trading above the round $1,800 figure, which provides immediate and psychological support. XAU/USD broke a five-day losing streak on Monday as the market took a breather from the currently dominant trend of re-assessing the Federal Reserve future rate hike path in a hawkish way. That just seemed to be a small retracement in the way of the continuing downtrend for Gold price.

This week, a bunch of mid-tier United States macroeconomic releases could help shape how much more room Gold price can have to the downside ahead of the crucial March 22 Federal Reserve (Fed) meeting. The US central bank probably will take all the data into account before delivering its next monetary policy plan – the now famously known as dot plot – although the next two weeks with Nonfarm Payrolls and Consumer Price Index should be more impactful.

Gold news: Consumer Confidence more relevant than Durable Goods Orders

The Conference Board's Consumer Confidence Survey for February is the next big US macroeconomic release, scheduled for 15:00 GMT, and will be scrutinized for more direction. Rather than the headline Consumer Confidence index, the one-year consumer inflation expectations could trigger a reaction. In January, this component of the survey climbed to 6.8% from 6.6% in December. In case there is a pullback in this figure, the US Dollar could lose interest and help Gold price stage a short-term recovery and vice versa.

On Monday, the US Census Bureau released the Durable Goods Orders data for January on Monday, which came out mixed and did not stage a big reaction from the markets. The headline figure was worse than expected, showing a bigger decline (-4.5%) than what the consensus had forecast (-4.0%), but the core Nondefense Capital Goods Orders ex Aircraft beat expectations, showing a growth of 0.8% (vs 0.0% expected.) Gold price reacted modest-but-positively to this release as the US Dollar was somewhat sold across the board.

United States Manufacturing and Services PMIs on the way

The ISM will publish the Manufacturing PMI and the Services PMI on Wednesday and Friday, respectively, both at 15 GMT, which could be the most important releases of the week. 

If the ISM Services PMI report reaffirms that rising wage costs are feeding into accelerating price pressures in the sector, the US Dollar is likely to hold its ground against Gold. Hence, the Prices Paid Index component will be watched closely by market participants.

It's worth noting, however, that the CME Group FedWatch Tool shows that markets are fully pricing in at least two more 25 basis points Federal Reserve rate hikes in March and May. Additionally, the probability of the Fed holding the policy rate unchanged in June stands at 25%.

The market positioning suggests that the US Dollar doesn't have a lot of room on the upside, at least until the February jobs report and inflation data confirm or refute one more 25-bps hike in June.

In the meantime, investors will be watching the US Treasury bond yields. 4% aligns as key resistance for the 10-year US T-bond yield and there could be a technical correction if that level stays intact. In that scenario, Gold price could turn north due to the inverse correlation with the US Treasury yields.

Gold price under pressure from Fed rate hikes

Commerzbank strategists analyze current Gold price capital outflows, which could continue as the Federal Reserve keeps raising interest rates:

Gold ETFs have been seeing increased outflows again of late, for one thing. Outflows in the last five days of trading have totalled 14.7 tons, which equates to just shy of three tons per day.” 

“The world’s largest and most liquid Gold ETF has also registered outflows again recently. Previously, it had seen slight net inflows for several weeks, fuelling hopes that ETF investors were returning. It appears that the noticeable increase in rate hike expectations has quashed any such hopes for now.

Gold price: US Treasury bonds, the US Dollar and inflation dynamics

Gold is a non-yielding asset – holding it does not provide regular revenue – so it usually remains negatively correlated with United States Treasury bond yields. The benchmark US 10-year bond yield was constantly on the rise for most of 2022 as a response to the Federal Reserve raising interest rates to combat skyrocketing inflation. 

Price pressures remain high early in 2023, but Consumer Price Index (CPI) readings in the US and other big economies have shown signs of slowing down, and economists project this disinflation trend to continue through the rest of the year. A prolongation of this trend should help Gold price regain some footing from the demand side.

Treasury yields are not the only asset to track for Gold price (XAU/USD). The yellow metal is primarily traded in US Dollar terms, which makes it really vulnerable to currency market action. When the USD rallies against other major currencies and becomes the go-to asset, like it has been doing for the most part of the last year, Gold price tends to trend down as well. Of course, US Treasury yields and the US Dollar are highly correlated, so these dynamics are intertwined.

Gold price in 2023: Up-and-down action

Financial markets have been a two-tale story for the early part of 2023, in which Gold price has reflected in its price action like no other asset. XAU/USD rode an uptrend during all of January with the market optimism about inflation slowing down and constant Federal Reserve dovish talk, only to see a drastic turnaround back to the old dynamics in February after a hot US Nonfarm Payrolls (NFP) report. The US economy adding more than 500K jobs in the month of January shifted the market expectations for the Fed easing its monetary policy, and the US Dollar has come back to the market King throne.

Gold price daily chart

Gold price opened the year at $1,823.76 and reached a year-to-date high of $1,960 on February 2, right in between the first Federal Reserve meeting of the year and the surprising release of the US jobs report for January. Since then, the ongoing downtrend has been relentless, reaching levels below the yearly open, around $1,800.