Gold Price Forecast: XAU/USD risks correction on death cross, potential Fed hawkishness

Gold price witnessed another bullish day on Tuesday, as it built on the previous rebound and broke through the critical psychological barrier at $1,850. A sharp correction in the US dollar against its main competitors from three-week highs served as a key catalyst behind gold’s additional upside. A sudden turnaround in the risk sentiment in the European trading, as investors looked past the Russia-Ukraine crisis to earnings reports, weighed on the dollar’s safe-haven demand and boosted gold price. The retreat in the US Treasury yields also helped the bright metal to gain further ground, as investors preferred safety in the US Treasuries ahead of the US Federal Reserve’s (Fed) interest rate decision due on Wednesday. Bulls, however, failed to sustain above $1,850 and pull back towards the close, as the US tech sell-off resumed on the Fed rate hike concerns.

Gold price is treading water below $1,850 heading into the Fed showdown this Wednesday. The US dollar is in a downside consolidative mode alongside the yields, as traders brace to gauge the Fed’s hawkishness. The world’s most powerful central bank is set to hint at a March rate hike while expressing its concerns over inflation. Investors will closely watch for any signal on the timing of the balance sheet reduction, which could offer a hawkish surprise to markets. On any hawkish pivot from the Fed, the yields and the greenback could catch a fresh bid wave, which will likely trigger a correction in gold price. The hawkish Fed outlook could exacerbate the pain on Wall Street, boding well for the dollar.

Gold Price Chart - Technical outlook

Gold: Daily chart

Gold’s upside remains capped by the upper boundary of a month-long rising wedge formation, now pegged at $1,853.

Rejection at that level could prompt a corrective pullback in gold price towards Tuesday’s low of $1,835.

Should the downside gather traction, then bears will target the recent range lows around $1,829.

The 14-Relative Strength Index (RSI) has edged slightly lower, which implies weakening bullish momentum.

The 200-Daily Moving Average (DMA) crossed the 50-DMA for the upside on a daily closing basis, validating a death cross and adding credence to a potential leg down in gold price.

If the Fed fails to cheer the hawks, then gold bulls will gain a fresh life, triggering a fresh upswing for a retest of two-month highs of $1,854.

This will confirm an upside breakout from a rising wedge formation, defying the bearish odds, with a rally towards $1,860 in the offing.