Gold Price Forecast: XAU/USD seems poised to challenge 2021 lows, around $1800 mark

Gold extended this week's rejection slide from the $1875-76 resistance zone and witnessed heavy selling for the fourth consecutive session on Thursday. The downward trajectory dragged the commodity to near three-week lows during the Asian session and was sponsored by a combination of factors. Signs of progress on additional US stimulus measures fueled hopes for a strong global economic recovery. The optimism remained supportive of the underlying bullish sentiment in the financial markets and weighed on the safe-haven XAU/USD.

Democrats in the US Congress took the first step to advance President Joe Biden's proposed relief package without Republican support and began debating a budget resolution for 2021 with coronavirus spending instructions. Meanwhile, the US bond market reacted strongly to the possibility of a larger government borrowing and pushed the yield on the benchmark 10-year government bond to near 10-month high touched in January. This, in turn, was seen as another factor that drove flows away from the non-yielding yellow metal.

Apart from this, stronger US economic data lifted the US dollar to more than two-month tops and exerted some additional pressure on the dollar-denominated commodity. On Wednesday, the ADP report showed that private-sector employment in the US grew 174K in January as compared to 49K expected. Separately, the US ISM Services PMI unexpectedly rose to 58.7 in January from 57.7 previous and the employment sub-component showed a significant increase. The data might have lifted expectations for Friday's official non-farm payrolls (NFP).

In the meantime, Thursday's release of the US Initial Weekly Jobless Claims data will be looked upon for some impetus later during the early North American session. This, along with the US stimulus headlines and the US bond yields, will influence the USD price dynamics. Traders might further take cues from the broader market risk sentiment to grab some meaningful trading opportunities.

Short-term technical outlook

From a technical perspective, sustained weakness below the $1830 intermediate support added credence to this week’s break below a short-term ascending trend-line. Hence, a subsequent slide towards challenging 2021 lows, around the $1800 mark, looks a distinct possibility. Some follow-through selling will be seen as a fresh trigger for bearish traders and set the stage for an extension of the downtrend, possibly towards the $1765-64 region touched on November 30.

On the flip side, the $1830 level now becomes immediate resistance. Any further recovery might be seen as a selling opportunity and runs the risk of fizzling out rather quickly near the ascending trend-line support breakpoint. The mentioned support-turned-resistance coincides with the very important 200-day SMA, currently around the $1848-50 region, which should now act a key pivotal point for short-term traders.