Gold Price Forecast: XAU/USD extends consolidative phase ahead of Fed

XAU/USD Current price: $2,157.78

• The Federal Reserve will announce its decision on monetary policy in the American afternoon.
• Investors will focus on the Summary of Economic Projections and potential rate cuts for 2024.
• XAU/USD seesaws around $2,155, neutral ahead of the Federal Reserve’s decision.

Spot Gold remains confined to a tight intraday range on Wednesday, hovering around the $2,155 mark. The US Dollar advanced throughout the first half of the day but reversed gains with Wall Street’s opening as investors await the United States (US) Federal Reserve (Fed) monetary policy decision. The central bank is widely anticipated to keep rates on hold, with investors focusing on whether the dot pot or Summary of Economic Projections (SEP) will still suggest three rate cuts this year as it did in March.

The pivot in monetary policy following aggressive tightening has taken much longer than initially anticipated. Market players began pricing in the end of the tightening cycle over a year ago. But Fed officials have managed to keep them waiting. Inflation has indeed receded, but not enough to fall within the Fed’s goal of around 2%. Policymakers have been cautious about the inflation and growth-related risks and decided to adopt the “higher-for-longer” stance, meaning keeping rates at current levels for as long as possible.

Moving forward, Chairman Jerome Powell and co. seemed more optimistic in December, delivering a dot plot with three potential rate cuts for this year. Investors rushed to price March as the date for the first, but resilient growth, stubborn inflation and a still-tight labour market erased such hope. Ahead of the upcoming announcement, markets are betting the first trim will take place in June. Furthermore, speculative interest is now considering the Fed may deliver just two cuts this year. The news, while discouraging, is already priced in.

XAU/USD short-term technical outlook

From a technical point of view, XAU/USD is little changed for a third consecutive day but holding above a Fibonacci support, the 23.6% retracement of the $1,984.03/$2,195.22 rally at $2,145.17. In the daily chart, the risk remains skewed to the upside, as technical indicators barely corrected extreme overbought conditions but hold within overbought territory. At the same time, the 20 Simple Moving Average (SMA) heads firmly north, converging with the 38.2% retracement of the aforementioned rally at $2,114.53, a critical support area and a potential bearish target.

In the near term, and according to the 4-hour chart, XAU/USD is neutral. The pair seesaws around a mildly bearish 20 SMA, although the 100 and 200 SMAs head sharply higher, well below the current level. Finally, technical indicators remain stuck around their midlines, lacking directional strength.

Support levels: 2,145.10 2,134.70 2,123.60

Resistance levels: 2,163.40 2,176.50 2,195.20