Gold Price Forecast: XAU/USD risks further downside on renewed hawkish Federal Reserve view

• Gold price stages a modest comeback on Tuesday but remains below $1,800.
• United States Dollar holds firm following ISM Services PMI-led staggering recovery. 
• Defending 50-SMA on the 4H chart is critical for Gold bulls amid a quiet docket.

Gold price is attempting a tepid bounce after suffering a steep drop on Monday, eyeing a ‘turnaround Tuesday’. The United States Dollar (USD) consolidates the recent recovery gains amid a risk-friendly market environment and negative US Treasury bond yields.

United States ISM Services PMI rescues the US Dollar

The United States Dollar erased early losses on Monday. It staged a staggering recovery after the US ISM Services PMI, and Factory Orders data outpaced expectations and revived hopes for further tightening by the US Federal Reserve (Fed). In light of this, the Gold price tumbled from multi-month highs of $1,810 to settle the day at the lower end near $1,766.

The ISM said its Manufacturing Purchasing Managers Index (PMI) rose to 56.5 last month, up from November’s reading of 54.4. Economists were looking for a drop to 53.1. United States Factory Orders jumped 1.0% in October after rising 0.3% in September and against expectations of 0.7%. Monday’s robust data combined with the latest US Nonfarm Payrolls report renewed the hawkish Federal Reserve rate hike view and fuelled a solid rebound in the US Treasury bond yields, which drove the US Dollar higher. The United States Bureau of Labor Statistics (BLS) showed Friday that the Nonfarm Payrolls increased by 263,000 in November vs. the 200,000 expected.

At the time of writing, the US Dollar Index is holding steady at 105.30, consolidating the recovery from near the 104.10 region. The US benchmark 10-year Treasury yields are trading around 3.58%, posting modest losses on the day. The non-interest-bearing Gold price loses its appeal on hawkish Federal Reserve rate hike expectations.

The US Dollar finds support from renewed uptick in USD/JPY

The latest uptick in the US Dollar could be associated with the renewed bid caught by the USD/JPY pair after Bank of Japan (BoJ) Governor Haruhiko Kuroda talked about a potential exit to the bank’s ultra-loose monetary policy on Tuesday. Kuroda said, “once 2% inflation target is consistently met, will consider exiting ultra-loose policy.” The gold price rebound appears capped even though Gold bulls are drawing support from the US Treasury bond yields retreat.

Looking ahead, it remains to be seen if the US Dollar can build on its recovery momentum, as China’s relaxation to its Covid curbs continues to bode well for the broader market sentiment. However, the European traders’ reaction to the renewed hawkish Federal Reserve view could trigger a fresh buying wave in the US Dollar, which could resume the corrective downside in Gold price.

Gold price technical outlook: Four-hour chart

The tide turned against Gold buyers on Monday, prompting Gold price to yield a downside break from a rising wedge formation, as it closed below the rising trendline support at $1,797 on a four-hourly candlestick closing basis.

The sell-off took out the bullish 21-Simple Moving Average (SMA), now at $1,789, while the horizontal 50SMA at $1,769 came to the rescue of Gold optimists.

The Relative Strength Index (RSI) remains flatlined below the 50.00 level, suggesting more room for the downside in the near term.

If the 50-SMA support gives way, sellers could challenge the 100SMA at $1,764. The rising (dashed) trendline support at $1,757 will be the level to beat for the bears.

A sustained break below the latter could trigger a fresh downswing toward the pattern target measured at $1,732.

If the 50-SMA cushion holds the fort, the rebound could see legs toward the 21SMA support-turned-resistance. Further up, the $1,800 round figure will be back on buyers’ radars.