Gold Price Forecast: XAUUSD bulls could target $1,675 on Federal Reserve’s dovish signal

• The US Dollar returns to the red alongside Treasury yields on the Federal Reserve day.   
• Upbeat United States economic data fail to deter gold buyers as risk tone turns tepid.
• XAUUSD bulls eye 21-Daily Moving Average and $1,675 if the US central bank changes course.

Gold price is clinging onto the recent recovery gains near $1,650 on the US Federal Reserve (Fed) day, as investors turn cautious and refrain from placing any fresh bets on the US Dollar and the yellow metal.

US Dollar tracks Treasury yields lower

The American currency is back in the red zone after the previous rebound, as the US Treasury yields are seeing renewed selling pressure amid a cautious risk tone this Wednesday. The US Dollar enjoyed good two-way trades on Tuesday, initially sliding on an upbeat risk profile, as China’s Caixin Manufacturing PMI improved and talks of the country reopening lifted the global stocks. The tide, however, turned in favor of dollar bulls after risk sentiment soured, as expectations of a Fed dovish pivot faded on upbeat JOLTS Job Openings data and ISM Manufacturing PMI from the United States outpaced expectations.

XAUUSD sustains rebound amid demand optimism

Despite the upswing in the US currency, XAUUSD price stood resilient and sustained its recovery momentum, drawing support from the latest World Gold Council (WGC) report. The Council said in its report that the global gold demand in the third quarter rose 28% from the same period in 2021 amid central banks amassing. Further, escalating geopolitical tensions between Saudi Arabia and Iran, as well as, US and China, helped gold price stay afloat. Brendan Carr, a commissioner at the US Federal Communications Commission (FCC), is scheduled to visit Taiwan from November 2 to November 4. Another US diplomat’s visit will likely annoy China, especially after their response is seen following American House Speaker Nancy Pelosi’s visit.

Focus on Fed Chair Jerome Powell’s presser

Looking ahead, XAUUSD will continue to follow the dynamics of the US Dollar and the yields heading into the critical Fed rate hike announcement. Ahead of that, the US ADP Employment Change data will also provide some temporary trading opportunities for the bullion. The American private sector is likely to have created 193K jobs in October against a 208K growth seen in September. Should Friday’s Nonfarm Payrolls release from the United States also show a slowdown in jobs creation, it will add to the talks of the Fed shifting pivot to a dovish stance. However, the Fed Chair Jerome Powell’s speech during the post-monetary policy press conference on Wednesday will likely let the cat out of the bag, potentially hinting at a slowdown in the pace of tightening for the world’s most powerful central bank. A 75 bps Fed rate hike this month is fully baked in by markets, with a 50 bps most likely seen as the best outcome in December so far.

XAUUSD price short-term technical outlook

XAUUSD price is eyeing a sustained break above the previous day’s high of $1,657 in order to challenge the bearish 21-Daily Moving Average (DMA) at $1,660.

If the Fed delivers a dovish rate hike, then gold bulls could flex their muscles towards the end-October high at $1,675.

The 14-day Relative Strength Index (RSI) is trading flattish just beneath the 50.00 level, suggesting that any upside attempts in the XAUUSD price could remain shallow.  

The renewed downside will open up if Fed Chair Jerome Powell maintains that there is a need for more aggressive rate increases to contain inflation. However, that seems to be a remote possibility (in my view). On a hawkish surprise, gold price could resume its broader downtrend, with the initial support seen at the recent range lows around $1,638.

The next downside cap is aligned at the $1,620 round number, below which the October low at $1,617 could be threatened.