Gold Price Forecast: XAU/USD set to retest key $1,815 supply zone amid risk-aversion

Despite the extended rally to three-week highs of $1,814, gold price closed Friday below $1,800 and in the red, as bulls failed to sustain higher levels. It finished the week higher overall, though, and it was the first time in five weeks that it did so. Hawkish monetary policy decisions by some of the major central banks, including the Fed and BOE, spurred renewed strength. US Treasury yield weakness amid expectations that the hawkish Fed shift will help alleviate inflation pressures, underpinned the non-yielding gold. The precious metal's rally lost legs on Friday, however, after the US dollar jumped on the back of short-covering. Investors looked to close out their trades, as the final full week of 2021 drew to an end. Also, the spread of the Omicron covid variant fed fears, leading to a tumble on Wall Street, whilst further aiding the greenback’s turnaround.

Gold price has kicked off the Christmas week on the right footing, regaining the $1,800 level, despite the US dollar’s upside consolidative mode. Risk-aversion remains the main underlying theme so far this Monday, as investors absorb the weekend blow received from US Senator Joe Manchin. The conservative Democrat said he won’t support President Joe Biden administration’s “Build Back Better” plan, killing hopes for the huge $1.75 trillion fiscal spending pledge. In light of Manchin’s comments, Goldman Sachs downgraded US GDP forecasts, which further fuelled the risk-off flows, as Netherland’s Omicron lockdowns added to the market’s pain. Surging Omicron cases in the UK and Europe keep investors on the edge, benefiting the traditional safe-haven gold.

Gold Price Chart - Technical outlook

Gold: Daily chart

On the daily sticks, gold price saw an extension of the falling wedge breakout confirmed on Thursday and reached its highest level in three weeks at $1,814.

The yellow metal closed the week below the 50-Daily Moving Average (DMA) at $1,798. Monday’s trading saw the bulls recapture the latter with a estest of the November 30 highs at $1,808 now in sight.

Friday’s high will be next on the buyers’ radars, above which the November 26 highs of $1,816 will be a tough nut to crack.

The 14-day Relative Strength Index (RSI) is looking north above the midline, allowing room for more upside.  

Alternatively, any retracement from higher levels will seek a retest of the 200-DMA at $1,795, below which strong support around $1,785 will be tested.

That demand area is the confluence of the wedge resistance-turned-support, as well as the level of the 21- and 100-DMAs. Further south, Thursday’s low at $1,776 will be put to test once again.