Gold Price Forecast: XAU/USD bulls seem reluctant amid reduced March Fed rate-cut bets

Gold price (XAU/USD) attracts some dip-buying on Tuesday and sticks to its intraday gains around the $2,030 level, closer to the previous day's swing high during the early European session. The risk of a further escalation of military action in the Middle East turns out to be a key factor benefitting the safe-haven precious metal. In fact, the US and UK conducted a fresh series of joint air strikes against the Iran-backed Houthi targets in Yemen to stop the rebel group from targeting commercial vessels travelling through the important Red Sea trade route. Adding to this, a member of the Houthi’s ruling council said that the rebel group would continue to defy the West, while the recent aggression will only increase the Yemeni people’s determination to carry out their moral and humanitarian responsibilities towards the oppressed in Gaza.

Apart from this, the emergence of some selling the US Dollar (USD) selling, led by the post-Bank of Japan (BoJ) rise in the Japanese Yen, lends additional support to the Gold price. Traders, however, might refrain from placing aggressive bullish bets around the XAU/USD amid reduced bets for an early interest rate cut by the Federal Reserve (Fed). The markets are now pricing in a less than 50% chance of a rate cut in March, down from as much as 80% a week ago, and a cumulative of five 25 bps rate cuts for 2024 as compared to six two weeks ago. A shift in market expectations is inspired by the incoming stronger US macro data, which pointed to a still-resilient economy, and the recent hawkish remarks by several Fed officials. This, in turn, remains supportive of elevated US Treasury bond yields, which should act as a tailwind for the buck and cap the XAU/USD.

Traders might also prefer to wait on the sidelines ahead of this week's important releases, starting with the flash global PMIs on Wednesday. This will be followed by the Advance Q4 GDP print and the Core PCE Price Index data from the US, which will play a key role in influencing market expectations about the Fed's future policy decision and provide a fresh directional impetus to the Gold price. Apart from this, the European Central Bank (ECB) meeting on Thursday might infuse some volatility in the markets and contribute to producing some meaningful opportunities around the XAU/USD. Nevertheless, the aforementioned mixed fundamental backdrop makes it prudent to wait for strong follow-through buying before positioning for an extension of the recent bounce from the vicinity of the $2,000 psychological mark, over a one-month low touched last week.

Technical Outlook

From a technical perspective, any subsequent move up might continue to confront stiff resistance and remain capped near the $2,040-$2,042 supply zone. That said, a sustained breakout through the said barrier might trigger a short-covering rally and lift the Gold price to the next relevant hurdle near the $2,058-2,060 region. The upward trajectory could extend further towards the $2,077 horizontal hurdle en route to the $2,100 round-figure mark.

On the flip side, the $2,022-2,020 area, closely followed by the overnight swing low, around the $2,016 region, now seems to protect the immediate downside ahead of the $2,000 mark. A convincing break below the latter will be seen as a fresh trigger for bearish traders and drag the Gold price to the 100-day Simple Moving Average (SMA), currently around the $1,974 region, en route to the very important 200-day SMA support near the $1,964-1,963 zone.

Gold daily chart