Gold Price Forecast: XAU/USD could resume the rebound on golden cross confirmation

Gold price staged an impressive bounce from four-week lows of $1,770 on Wednesday to reach as high as $1,809 before reversing sharply to finish the day at $1,779. The up and down price movement extended into gold trading so far this week, as volatility returned on the back of the uncertainty surrounding the Omicron covid variant and Fed Chair Jerome Powell’s hawkish shift on the monetary policy normalization.

However, the main catalyst behind gold’s rebound could be attributed to the ongoing negative momentum in the US Treasury yields across the curve, aggravated by the downbeat market mood. The weakness in the yields also capped the renewed upside in the US dollar, helping put a floor under gold price.

Gold price is trying hard to build on Wednesday’s rebound, as the risk-off traders are seen cooling-off, lending some support to the US rates. The greenback is also catching fresh bids, as investors assess the implications of the Fed’s hastened taper on the economic recovery, in the face of looming risks from the Omicron covid variant. Should the risk recovery gain traction in the sessions ahead, then the dollar could extend the uptick in tandem with the yields, prompting gold price to resume the downside. However, fears over the new covid variant could cushion any move lower in gold, especially after a single Omicron detected in the US has unnerved markets.

Gold Price Chart - Technical outlook

Gold: Daily chart

Gold’s daily chart is hinting at a potential reversal in the ongoing downtrend, with the 50-Daily Moving Average (DMA) having crossed the 200-DMA from below.

A golden cross will be confirmed if the above averages maintain the formation on a daily closing basis.

With the 14-day Relative Strength Index (RSI), however, still trending below the midline, a strong fundamental catalyst will be needed to reverse the downtrend.

The confluence of the 50, 100 and 200-DMAs at $1,792 remains a tough nut to crack for gold bulls. The next upside target is seen at the $1,800 threshold.

If the recovery momentum gathers steam, then gold bulls could retest Wednesday’s high of $1,809, above which the previous month’s high at $1,814 will be on their radars.

On the downside, a sustained break below Tuesday’s low of $1,770 is needed to revive the downtrend towards the November 3 low of $1,759. Further south, the $1,750 psychological level will be challenged.