Gold Price Forecast: XAU/USD surrenders intraday gains, seems vulnerable below $1,780
|- Fears over the new Omicron variant assisted gold to gain some positive traction on Wednesday.
- Rising Fed rate hike bets, rebounding US bond yields acted as a headwind for the precious metal.
- The emergence of fresh buying around the USD attracted fresh sellers ahead of the $1,800 mark.
Gold gained some positive traction on Wednesday and staged a goodish rebound from a four-week low, around the $1,770 region touched in the previous day. The uptick, however, lacked strong follow-through buying, or a bullish conviction and faltered ahead of the $1,800 mark. The XAU/USD has now surrendered a major part of its intraday gains and slipped back below the $1,780 level during the early European session.
Concerns about the potential economic fallout from the detection of a new and possibly vaccine-resistant coronavirus variant turned out to be a key factor that benefitted the safe-haven gold. The global risk sentiment, however, stabilized a bit as investors preferred to wait and see if the Omicron variant would eventually derail the economic recovery. This was evident from a generally positive tone around the equity markets, which, in turn, acted as a headwind for the commodity and capped gains.
Apart from this, rising bets for a more aggressive policy tightening by the Fed next year further collaborated to keep a lid on any meaningful upside for gold prices. Testifying before the Senate Banking Committee, Fed Chair Jerome Powell said that it is appropriate to consider wrapping up the tapering of asset purchases, perhaps a few months sooner. Powell added that it's time to retire the word 'transitory' as the risk of persistently higher inflationary pressures has increased.
Reacting to Powell's remarks, the money markets started pricing in the possibility of at least a 50 bps rate hike by the end of 2022. This was reinforced by the ongoing recovery in the US Treasury bond yields, which further held back bulls from placing aggressive bets around the non-yielding yellow metal. Apart from this, the latest leg of the intraday decline could also be attributed to the emergence of fresh buying around the US dollar. A stronger greenback tends to drive flows away from dollar-denominated commodities, including gold.
Meanwhile, the fundamental backdrop supports prospects for a further near-term depreciating move for the XAU/USD. The outlook is reinforced by the recent repeated failures to find acceptance above the very important 200-day SMA. Adding to this, the overnight sustained break below a one-week-old trading range support adds credence to the bearish bias. Hence, a subsequent fall towards testing the next relevant support, around the $1,760-59 region, remains a distinct possibility.
Market participants now look forward to the US economic docket, featuring the ADP report on private-sector employment and ISM Manufacturing PMI later during the early North American session. Apart from this, Fed Chair Jerome Powell and US Treasury Secretary Janet Yellen's joint testimony before the House Financial Services Committee will influence the USD price dynamics. Traders will further take cues from developments surrounding the coronavirus saga and the broader market risk sentiment for some short-term opportunities around gold.
Gold daily chart
Levels to watch
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