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Gold Price Forecast: XAU/USD not out of the woods yet, November lows still in sight

  • Gold price sees a dead cat bounce as downside remains compelling.
  • Fed Chair Powell’s hawkish surprise pumped up yields, DXY in a volatile session.  
  • Daily technical setup favors gold bears ahead of US data flow, more Powell.  

Gold price extended the previous week’s bearish momentum into the second straight day on Tuesday. The bright metal tumbled to fresh four-week lows of $1,770, incurring heavy losses in yet another volatile session triggered by Fed Chair Jerome Powell’s testimony and persistent Omicron covid variant fears. Moderna Inc. CEO Stéphane Bancel's warnings against the efficacy of the existing vaccines in combating the new variant triggered a risk-aversion wave across the financial markets. A rush to safety saw the Treasury yields crumbling down, in turn, downing the US dollar across the board, which drove the non-yielding gold to the two-day highs of $1,809.

The tide turned in favor of gold bears, as Powell’s testimony on the CARES Act before the Senate Banking Committee got underway. The Fed Chief said, "the economy is very strong and inflationary pressures are high," adding that "it is, therefore, appropriate in my view to consider wrapping up the taper of our asset purchases … perhaps a few months sooner." Powell’s hawkish surprise fuelled a V-shaped recovery in the yields as well as the dollar. As a result, gold price got smashed to $1,770 before rebounding to near $1,780 amid a sharp reversal in the dollar’s gains. The Powell-led sell-off in the Wall Street indices cushioned the steep decline in gold price.

Wednesday’s trading so far sees gold price attempting a dead cat bounce, replicating the recovery moves witnessed in the Asian trades over the last few trading days. The US dollar is looking to stabilize after a wild ride, finding some solace from rebounding Treasury yields. Investors remain in a wait-and-see mode, awaiting fresh updates on the Omicron variant and day 2 of Powell’s testimony for fresh trading impetus. The US ADP jobs and ISM Manufacturing PMI will provide fresh hints on the economic performance ahead of Friday’s all-important Nonfarm Payrolls data.

Gold Price Chart - Technical outlook

Gold: Daily chart

Gold’s daily chart continues to paint a bearish picture after the price breached a bunch of critical support levels around $1,792 on Monday. That level is the confluence of the 50-, 100- and 200-Daily Moving Averages (DMA).

Further, Monday’s close below the two-month-old ascending trendline support at $1,786 added credence to the downside in gold.

The Relative Strength Index (RSI) is edging higher but remains below the 50 level, suggesting that any rebound could be a good selling opportunity.  

A sustained break below Tuesday’s low of $1,770 will put the November 3 low of $1,859 at risk. Further south, the $1,750 psychological level will be challenged.

Alternatively, gold price need to find acceptance above the aforesaid crucial support now turned resistance for an extended recovery. The next stop for bulls is placed at the $1,800 threshold.

If the recovery momentum gathers steam, then gold bulls will reach out to test mildly bearish 21-DMA at $1,820.

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Author

Dhwani Mehta

Dhwani Mehta

FXStreet

Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.

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