Gold Price Forecast: XAU/USD sold-off into Fed’s optimism but downside limited?

Wednesday’s all-important US Federal Reserve (Fed) monetary policy decision saved the day for the US dollar and triggered a sharp sell-off in Gold (XAU/USD). The yellow metal refreshed two-week highs at $1973.53 in the first half of the day amid a cautious market mood but failed to sustain at higher levels once again after Fed upgraded its economic assessment. The world’s most powerful central bank pledged to keep rates lower for longer while increasing tolerance for higher inflation. Despite the not-so-dovish Fed-induced gold’s decline, the metal managed to close the day in the green above $1950. Fed’s projection of faster recovery in the economy and jobs market pushed the Treasury yields higher alongside the dollar. Fresh hopes of the US Congress reaching a fiscal stimulus deal also underpinned the greenback.

Looking ahead, gold could see a fresh leg lower, as the European traders hit their desks and react to the Fed optimism, emboldening the dollar bulls. Although the downside could be limited if the sentiment improves on Wall Street and weighs on the dollar’s move higher. The US Initial Jobless Claims will be also closely eyed later on Thursday.

Gold: Short-tern technical outlook

Daily chart

Gold failed to found acceptance above $1970 levels for the second day in a row, as it fell back below the 21-day Simple Moving Average (DMA), now at $1944.57.

The bulls are likely to find strong support at the upward-sloping 50-DMA at $1932. Therefore, a tepid bounce from that level cannot be ruled out. A daily closing above the $1950 level also keeps the buyers hopeful.

The 14-day Relative Strength Index (RSI), currently at 48.84, continues to paint a bearish picture. A daily closing below the 50-DMA support is needed to confirm the bearish reversal. Sellers would then target the critical support around the $1905 region.