Gold Price Forecast: Defending 100-DMA is critical for XAU/USD bulls amid Omicron woes, thin trading

Gold extended its correction from three-week highs into the second straight day on Monday, as the bulls were unable to secure ground above $1,800. The bright metal bore the brunt of a sharp upturn in the US Treasury yields, in response to the Fed’s hawkish expectations and year-end positions adjustments in the Treasuries. Thus, gold bulls ignored the risk-off environment, spurred by the growing concerns over the rapid spread of the Omicron covid variant globally. Some of the major European economies are considering tighter restrictions to curb the virus spread heading towards the Christmas and the year-end holiday season. The European stock market tumbled roughly 2% while Wall Street indices shed a little over 1% on Monday, putting a floor under gold price.  

This Tuesday, the market sentiment improved in the Asian session, as investors assessed the potential risks from the Omicron variant-induced restrictions in some of the major economies. Meanwhile, encouraging news from Moderna Inc. that a booster dose of its covid vaccine appeared to be protective against the fast-spreading Omicron in laboratory testing also helped to calm fears over the new variant. The safe-haven US dollar remained on the defensive amid risk recovery, as the futures tied to the American stocks jumped 0.70% so far. The US rates paused its solid recovery, aiding the rebound in gold price. Investors will gradually turn on the sidelines, squaring off their positions amid a holiday-shortened week and thin market conditions. Therefore, choppy trading in gold price cannot be ruled out going forward, as traders await Thursday’s US PCE Inflation and Durable Goods data for some fresh trading incentives.

Gold Price Chart - Technical outlook

Gold: Daily chart

On the daily sticks, gold price has managed to find the support of the 100-Daily Moving Average (DMA) at $1,788 following its corrective pullback.

Defending the latter is critical for bulls to keep its recent bullish momentum intact.

The 14-day Relative Strength Index (RSI) is trading flat at coin flip levels, suggesting that a lack of clear direction for gold price.   

Therefore, the bright metal could very well remain confined with a narrow range around the $1,800 mark.

On the upside, immediate resistance is seen at the 200-DMA at $1,795, above which the 50-DMA at $1,800 needs to be cleared on a sustained basis.

Monday’s high at $1,804 will be on the buyers’ minds en-route the three-week highs of $1,814.

Alternatively, if the 100-DMA gives way, then a drop towards the horizontal 21-DMA at $1,783 remains inevitable.

Daily closing below the 21-DMA will trigger a fresh downswing towards the December 16 lows of $1,776.