Gold Price Forecast: XAU/USD rebounds but downside risks intact, focus on US NFP

Gold price extended the previous sell-off and hit eleven-day lows at $1,785 on Thursday, in a classic case of hawkish Fed outlook-led rally in the US Treasury yields, which made gold out of favor as an investment asset. Wednesday’s FOMC minutes surprised the hawks to the upside after it revealed that the policymakers discussed balance sheet run-off at their December meeting. Also, the Fed minutes highlighted that the world’s powerful central bank remains on track for faster rate hikes to counter the inflationary pressures. The benchmark 10-year Treasury yields spiked to the highest levels since April 2021, recapturing the key 1.75% level.

On NFP Friday, gold price is seeing a renewed uptick towards $1,800, as bulls come up for their last dance. American is seen adding 400K jobs in December vs. 210K created previously, with a potential downtick in the participation rate. Solid jobs numbers are likely to bolster the expectations of aggressive Fed rate hikes, which will pave the way for the balance sheet reduction. Gold price will likely succumb to a fresh upswing in the Treasury yields on the US jobs blowout while the greenback will also ride the economic optimism wave. Only a big miss on the labor market report could offer some temporary reprieve to gold bulls, as the Fed’s hawkish narrative will likely remain intact going forward. The Omicron covid updates will be also closely eyed for fresh trading opportunities in gold price.

Gold Price Chart - Technical outlook

Gold: Four-hour chart

Gold price failed to defend the critical 200-Simple Moving Average (SMA) support, then at $1,795, on the four-hour chart Thursday, as the selling pressure around the metal remained unabated.

The metal extended the slide to test the December 21 lows of $1,785 after breaching all the major SMAs as well as the December 29 low of $1,789.

At the moment, gold price looks to recapture the bearish 200-SMA, now at 1,794 amid a steady uptick in the Relative Strength Index (RSI).

Thursday’s sell-off followed by the latest rebound has carved out a bear flag pattern on the said time.

A four-hourly candlestick closing below the rising trendline support at 1,789 will confirm the bearish continuation formation, calling for a retest of the $1,785 support area.

The next significant cushion is seen at the December 16 trough of $1,775. Fresh bearish positions will be created below the latter, as gold sellers will then aim for the $1,750 demand zone.

On the flip side, a sustained break above the rising trendline resistance at $1,796 will invalidate the bear flag formation, prompting a meaningful recovery towards the mildly bullish 100-SMA at $1,802.

The downward-sloping 21-SMA at 1,806 will then challenge the bullish commitments, as gold price looks to extend the upside towards the 50-SMA at $1,809. The weekly highs near 1,830 will be back on the buyers’ radar if the 50-SMA caves in.