Gold Price Forecast: XAU/USD looks north but Fed’s forward guidance holds the key

• Gold regains poise, finally finds acceptance above $1950
• Dovish Fed expectations to keep the USD on the back foot.
• Eyes on Fed’s economic projections and DOT plot for fresh direction.

Gold (XAU/USD) has regained the bids above $1950 on Wednesday, having settled Tuesday a tad lower at $1954. The bright metal witnessed good two-way price swings a day before, mainly driven by the US dollar dynamics and global market sentiment, in absence of any significant US macro news. Gold rose to two-week highs of $1972 in the first half of the day, helped by notable US dollar supply. Upbeat Chinese activity numbers lifted the market mood and downed the dollar. However, in the American trading, gold tumbled over $20 as the greenback staged a comeback amid resurgent haven demand on worries over the US fiscal deadlock and a ballooning deficit. Further, the tech rally-driven gains on Wall Street indices also dampened the sentiment around gold.  

In the lead up to the Federal Reserve (Fed) showdown due later on Wednesday at 1800 GMT, the dollar has given up the overnight gains amid dovish expectations. The Fed is unlikely to make any changes to its monetary policy settings but could formally announce the adoption of the average inflation targeting (AIT) framework. The key focus will be on the central bank’s long-term projections and dot plot chart which is expected to read dovish, as the economy continues to battle out the coronavirus blow. Dovish and uncertain Fed outcome could trigger a fresh sell-off in the US currency, benefitting gold.  

Gold: Short-tern technical outlook

Daily chart

Gold confirmed a symmetrical triangle breakout after closing Monday above the falling trendline (pattern) hurdle at $1955.18.

On Tuesday, the price closed in the red but finally found acceptance above the critical $1950 level for the second day in a row, having recaptured the 21-day Simple Moving Average (DMA), now at $1944.30.

With that, the price trades above all major DMAs alongside a bullish 14-day Relative Strength Index (RSI), currently inching slightly higher at 54.95.

Should the Fed turn out more dovish than expected, the metal has a room for a test of $2000. However, a closing above critical resistance around $1973 is needed for additional upside.

Alternatively, the price could drop back towards the upward-sloping 50-DMA at $1929, below which the September 8 low of $1906 could be put at risk. A daily closing below the latter would prompt the resumption of the corrective declines from record highs of $2075.