Gold Price Forecast: XAU/USD edges lower, downside seems limited amid less hawkish Fed

• Gold price retreats from the weekly high set on Friday and is pressured by a combination of factors.
• An uptick in US Treasury bond yields, US Dollar bounce and a positive risk tone undermine the metal.
• Bets for less aggressive rate hikes by Federal Reserve help limit any further losses for the XAU/USD.

Gold price retreats from a fresh weekly high touched earlier this Friday and remain on the defensive through the mid-European session. The XAU/USD is currently placed just above the $1,750 level and for now, seems to have snapped a three-day winning streak. The downtick, however, lacks follow-through and warrants caution before confirming that a two-day-old up trend from the $1,725 region, or a nearly two-week low touched on Wednesday, has run out of steam.

Modest US Dollar uptick and a positive risk tone weigh on Gold price

The US Dollar attracts some buying amid a modest uptick in the US Treasury bond yields, which, in turn, is seen as a key factor acting as a headwind for the Dollar-denominated Gold price. Apart from this, a generally positive tone around the equity markets seems to dent demand for the safe-haven XAU/USD. That said, firming expectations for a less aggressive policy tightening by the Federal Reserve keeps a lid on any meaningful gains for the USD and helps limit the downside for the non-yielding yellow metal.

Dovish signals by Federal Reserve act as a tailwind for Gold price

In fact, the November Federal Open Market Committee (FOMC) meeting minutes released on Wednesday showed that officials were largely satisfied they could stop front-loading the rate increases. The dovish signal validated the peak inflation narrative and reaffirmed bets for a relatively smaller 50 bps rate hike at the next FOMC policy meeting in December. This, in turn, dragged the yield on the benchmark 10-year US government bond to its lowest level since early October, which, in turn, should cap the US Dollar.

China’s COVID-19 woes contribute to limiting losses for Gold price

Furthermore, the worsening COVID-19 situation in China and the imposition of fresh lockdowns might also lend some support to the safe-haven XAU/USD. In the absence of any major market-moving economic releases, traders might also refrain from placing aggressive bets around Gold price amid relatively lighter trading volumes on the last day of the week. Nevertheless, the precious metal remains on track to post modest weekly gains as the focus shifts to next week's important US macro releases, including the closely-watched NFP report.

Traders now look to next week’s key US macro data for a fresh impetus

Apart from this, traders will take cues from the Prelim Q3 GDP report on Wednesday and Core PCE Price Index - the Fed's preferred inflation gauge on Thursday. This, along with Federal Reserve Chair Jerome Powell's speech, will play a key role in influencing the near-term US Dollar price dynamics and provide a fresh directional impetus to Gold price.

Gold price technical outlook

From a technical perspective, any subsequent slide below the $1,750 level now seems to find decent support near the $1,736-$1,735 region. The next relevant support for Gold price is pegged near the $1,725 zone, or a nearly two-week low touched on Wednesday. A convincing break below the latter might prompt some technical selling and drag spot prices further towards the $1,700 round-figure mark.

On the flip side, the $1,760-$1,762 area now seems to have emerged as an immediate hurdle. Some follow-through buying will be seen as a fresh trigger for bulls and lift Gold price to the $1,772 intermediate barrier. The momentum could get extended towards the $1,778 zone en route to the $1,786 region, or the highest level since mid-August touched earlier this month. 

Key levels to watch