Gold Price Forecast: XAU/USD could threaten $1,650 if risk-aversion heightens

Gold price is consolidating the downside near weekly lows near $1,660, as bears take a breather before the next push lower. Risk-aversion remains the main underlying theme so far this Tuesday, as US dollar bulls capitalize on safe-haven flows and add to the downside in the bullion. Escalating geopolitical threats over the Russia-Ukraine war, China’s covid resurgence and the US’ curbs on China’s chip-makers dent investors’ sentiment, Markets also remain cautious amid aggressive Fed rate hike bets, fuelled by hawkish commentary from the central bank’s policymakers and upbeat US Nonfarm Payrolls. Markets are pricing nearly an 80% chance of a 75 bps Fed rate hike next month, which is driving the US Treasury yields through the roof while dulling gold’s appeal as a zero-yielding asset.

On Monday,  Fed Vice Chair Lael Brainard said the US central bank is clear on the need for restrictive monetary policy to lower inflation but the path and pace of rate increases will remain “data-dependent”. Friday’s US NFP surpassed expectations of 250K, arriving at 263K while the previous figure stood at 315K. It was a partial holiday in the US, therefore, the dollar price action held the key for the bright metal. The US bond markets were closed while Wall Street kicked off the week on the wrong footing, as Russia’s revenge on potential Ukraine’s blasts on the Crimea bridge and the IMF and World Bank’s recession alarm rattled markets. Surging covid cases in China and a looming lockdown in Shanghai also killed risk appetite. Risk-aversion remained at full steam, reviving the haven demand for the dollar ahead of this week’s FOMC Minutes and the all-important US inflation data.

Also read: Gold Price Forecast: XAUUSD free-fall aims to $1,600

Looking ahead, a slew of Fedspeak and speeches from major central banks will be closely followed amid a data-quiet US docket. Investors will remain unnerved, as they brace for critical US events while digesting fresh geopolitical developments. Should risk-off flows intensify in the sessions ahead, the precious metal will extend its downside momentum, as the greenback will be broadly favored.

Gold price technical outlook: Daily chart

The selling pressure around the bullion remained unabated on Monday, as it closed the day below the horizontal 21-Daily Moving Average (DMA), then at $1,679.

Bears are likely to retain control below the 21DMA support, now at $1,675, as the 14-day Relative Strength Index (RSI) continues to inch lower below the midline.

A sustained break below the intermittent support of $1,660 could put the $1,650 psychological level under threat. Sellers could then probe the September 29 low of $1,642.

Alternatively, buyers need to find a strong foothold above the 21DMA on a daily closing basis to initiate any meaningful recovery.

The $1,700 threshold is seen as the next upside target, above which the $1,710 round figure will be challenged.