Gold Price Forecast: XAU/USD battles to extend gains beyond $2,300

XAU/USD Current price: $2,304.57

• Market players anticipate a hawkish Federal Reserve's announcement.
• United States data showed the labor market remained tight in April.
• XAU/USD recovered the $2,300 mark, but the risk remains skewed to the downside.

Gold bottomed at $2,281.56 early on Wednesday, as demand for the US Dollar extended at the beginning of the day amid a dismal mood. Speculative interest turned risk-averse on Tuesday following the release of the higher-than-anticipated United States (US) Q1 Employment Cost Index, which fueled concerns about persistent inflationary pressure. As a result, Wall Street turned red, while government bond yields rallied, with the 2-year Treasury note hitting its highest since last November.

Conditions worsened on Wednesday, as most major markets closed due to the Labor Day Holiday. Canada and the US, however, work normally as they celebrate such a holiday on a different date. American stock markets remain under pressure, reflecting continued concerns. At the same time, demand for the Greenback eased following dismal US data and ahead of the Federal Reserve (Fed) monetary policy announcement, sending investors back into Gold. XAU/USD recovered the $2,300 threshold and trades near a daily high of $2,310.35.

US data released earlier in the day showed the labor market in the country remains tight. On the one hand, the ADP survey indicated that the private sector added 192K new positions in April. On the other hand, the number of job openings remained little changed at 8.5 million on the last business day of March, according to the JOLTS Job Openings report. Furthermore, growth-related data was tepid, to say the least. Manufacturing output "contracted in April after one month of expansion following 16 consecutive months of contraction, say the nation's supply executives in the latest Manufacturing ISM report." Finally, S&P Global confirmed the Manufacturing PMI for the same month at 49.4, well below the 50 expected and the previous 49.8.

The Fed is widely anticipated to leave the policy rate unchanged at 5.25%-5.5% for the sixth consecutive meeting, while market players are also pricing in a hawkish message, that is, higher for longer rates. The focus will be on Chairman Jerome Powell's press conference and whatever clue he gives on future moves.

XAU/USD short-term technical outlook

The daily chart for XAU/USD shows it has trimmed half of Tuesday's losses but also that the pair keeps trading below $2,326.50, the 23.6% Fibonacci retracement of the $1,996.06/$2,431.43 rally.   Also, the pair met buyers before the next Fibonacci level, the 38.2% retracement at $2,260.30. The technical picture skews the risk to the downside, as the 20 Simple Moving Average (SMA) lost its bullish strength and stands flat at around $2,335. At the same time, technical indicators remain within negative levels, although with uneven directional strength, falling short of suggesting a clear direction.

In the near term, and according to the 4-hour chart, the latest advance seems corrective. XAU/USD trades below the 20 and 100 SMAs, with the shorter gaining bearish traction. Meanwhile, technical indicators corrected oversold readings but turned directionless below their midlines, suggesting buying interest is still limited.

Support levels: 2,291.20 2,276.50 2,260.30

Resistance levels: 2,310.50 2,326.50 2,341.05