Gold Price Forecast: XAU/USD rebounds but not out of the woods yet

Gold price is making a tepid recovery attempt toward the $1,900 level at the start of the week on Monday. Gold buyers breathed a sigh of relief after two back-to-back days of extreme sell-off.

United States Nonfarm Payrolls and Federal Reserve expectations

Gold price was smashed to the lowest level in four weeks at $1,860 early Monday, as the Asian traders hit their desks and piled on the United States Dollar (USD) in the wake of Friday’s US employment data for January. The US Dollar jumped alongside the US Treasury bond yields after Nonfarm Payrolls rose 517,000 against expectations of 185,000. The Unemployment Rate in the United States defied forecasts of a rise to 3.6%, falling to 3.4% from 3.5%. Other measures of the US labor market report and the US Institute for Supply Management (ISM) Services PMI also came in strong, bolstering expectations of a higher terminal Federal funds rate, likely above 5.0%. The ISM said on Friday its non-manufacturing PMI increased to 55.2 last month vs. 49.2 reported in December. The ISM survey's gauge of new orders received by services businesses increased to 60.4 in January, while the measure of services industry supplier deliveries rose to 50.0 from 48.5.

At the time of writing, the US Dollar Index is pulling back slightly from four-week highs of 103.22, allowing Gold price to stage a modest comeback. Meanwhile, the US Treasury bond yields are holding the recent gains, despite the renewed US-China geopolitical tensions induced by cautious markets.

US-China geopolitics back in focus

The market mood remains in a rough spot, starting a fresh week in the face of renewed US-Sino geopolitical risks. Over the weekend, US President Joe Biden’s administration lauded the Pentagon for shooting down an alleged Chinese spy balloon off the US Atlantic coast. In response, China angrily voiced its "strong dissatisfaction" at the move and said it may make "necessary responses."

Should risk aversion deepen in the day ahead, the US Treasury yields could pull back sharply amid increased safe-haven flows into the US government bonds, dragging the US Dollar lower across the board. Investors could also book profits on their USD longs ahead of Tuesday’s speech by the US Federal Reserve (Fed) Chair Jerome Powell. As a result, the Gold price rebound could gather steam only to be capped by the hawkish Federal Reserve expectations.

Gold price technical analysis: Daily chart

Gold price gave into the bearish pressures and closed Friday below the critical short-term ascending 21-Daily Moving Average (DMA) at $1,913.

The unabated selling took out the critical $1,900 support as Gold bears tested the $1,860 demand area.

On the revival of selling interest, the bright metal could resume decline toward the four-week low of $1,860. The next downside target is seen at the $1,850 psychological mark. The bullish 50-DMA hangs around that level.

The 14-day Relative Strength Index (RSI) has ticked higher but remains below the midline, suggesting that the bearish bias remains in place.

On the other side, Gold's price will hurdle the $1,900 threshold. Acceptance above the latter is critical to recapturing the 21-DMA.

So long as the Gold price is below the 21-DMA barrier, bears will likely maintain their control.