Gold Price Forecast: XAU/USD bulls could come up for last dance ahead of Federal Reserve

Gold price is looking to attempt a tepid recovery, as sellers take a breather ahead of the all-important US Federal Reserve policy announcement on Wednesday. Following days of massive volatility in the market, the anxiety before the Federal Reserve decision is keeping investors on the edge.

United States Dollar licks its wounds

Therefore, a sense of calm seems to prevail before the Fed storm, as the United States Dollar (USD) is licking its wounds while lending support to the Gold price amidst a retreat in the US Treasury bond yields across the curve.

Ebbing fears over the global banking crisis is keeping risk sentiment somewhat underpinned. Tuesday’s risk rally helped the US Treasury bond yields extend their recovery momentum, which smashed the Gold price to a two-day low of $1,935.

Federal Reserve decision to dictate the next Gold price direction

The correction in Gold price from yearly highs of $2,010 could gain further ground should the Federal Reserve downplay the recent financial market concerns, by maintaining its hawkish rhetoric that more tightening is needed to bring down inflation to the 2% target.

On the other side, the Fed’s hawkishness could revive recession fears alongside the banking sector fears. The US Dollar, however, could benefit from a hawkish Fed outlook and also on safe-haven flows. Increased risk-off flows could also support the traditional safety net, Gold price.

An explicit dovish language in the Fed’s policy statement, as well as, comments from Chairman Jerome Powell are needed to rekindle the Gold price rally back toward the $2,000 threshold. However, the Fed-led influence on the broader markets will also play a pivotal role in the next Gold price direction.

Gold price technical analysis: Daily chart

Having failed to sustain above the $2,000 barrier on Monday, Gold price extended its correction to test the $1,935 demand area before settling at $1,940 on Tuesday.

At the time of writing, Gold price is consolidating the previous losses below the $1,950 psychological level. Acceptance above the latter is needed to initiate any recovery toward the previous static resistance at $1,960.

The Fed-driven volatility could lead Gold buyers to retest the $2,000 mark and beyond on a dovish outlook.

The 14-day Relative Strength Index (RSI) has descended from the overbought territory, now looking to turnaround, which indicates a potential upside in the making.  

On the flip side, a break below the previous day’s low of $1,935 could reinforce selling interests toward the $1,900 level.

Hawkish Powell could challenge Gold’s bullish commitments at the March 17 low of $1,918 before attacking the $1,900 round level.