Gold Price Weekly Forecast: Bulls to remain in control as long as $1,900 stays intact

Gold price registered gains in the first three days of the week and touched its highest level since mid-April, near $1,950. With US Treasury bond yields staging a rebound in the second half of the week, however, XAU/USD lost its traction and erased its gains to close the week virtually unchanged. Furthermore, the New Year holiday in China caused Gold price's fluctuations to remain limited. The Federal Reserve's (Fed) policy announcements and January jobs report next week could help investors decide whether the pair's bullish rally has more legs.

What happened last week

The US Dollar started the new week on the back foot as risk flows continued to dominate the action in financial markets. As Wall Street's main indexes registered strong gains on Monday, the currency struggled to find demand, and XAU/USD stretched higher.

The data from the US revealed on Tuesday that the economic activity in the private sector continued to contract in early January, with S&P Global Manufacturing PMI and Services PMI arriving at 46.6 and 46.8, respectively. In the press release, Chief Business Economist at S&P Global Market Intelligence, Chris Williamson, noted that input costs accelerated in the new year amid rising wage inflation. The initial reaction to this comment limited XAU/USD's upside, but the pair ended up posting small daily gains.

In the absence of high-tier data releases, the benchmark 10-year US Treasury bond yield continued to stretch lower below 3.5% mid-week and Gold price advanced toward $1,950. On Thursday, the US Bureau of Economic Analysis announced that the US economy grew at an annual rate of 2.9% in the fourth quarter, compared to the market expectation of 2.6%. Other data from the US revealed that the weekly Initial Jobless Claims declined to 186K from 192K, and Durable Goods Orders increased by 5.6% in December, surpassing the market expectation of 2.5%. On the back of upbeat data, the 10-year US T-bond yield recovered back above 3.5% and forced XAU/USD to turn south.

As the 10-year US T-bond yield stabilized above 3.5% ahead of the weekend, Gold price fluctuated in a tight channel. The data from the US showed that the annual Core Personal Consumption Expenditures (PCE) Price Index declined to 4.4% in December from 4.7% in November. This print came in line with the market consensus and was largely ignored by market participants.

Next week

On Tuesday, Chinese NBS Manufacturing and Non-Manufacturing PMI data in December will be looked upon for fresh impetus. The service sector's activity is expected to show an expansion, while the contraction in the manufacturing sector is forecast to continue. In case PMI prints fall short of estimates and remind investors of the negative impact of coronavirus on the Chinese economy, one of the biggest Gold consumers in the world, XAU/USD could struggle to gain traction and vice versa.

The ISM will release the US Manufacturing PMI data for January, which is forecast to recover modestly to 48.7, from 48.4 in December. The Prices Paid component of the survey is expected to fall to 32.2 from 39.4. Ahead of the Fed's policy announcements, however, investors are likely to base their positions on these data.

The Fed is widely expected to raise its policy rate by 25 basis points (bps) to the range of 4.5-4.75%. According to the CME Group FedWatch Tool, there is little to no chance of the Fed opting for a bigger hike than 25 in March. Hence, the rate decision by itself is unlikely to trigger a significant reaction and investors should pay close attention to FOMC Chairman Jerome Powell's comments on the policy outlook. The market positioning also suggests that there isn't a lot of room for further US Dollar weakness, at least in the near term.

In case Powell continues to push back against the 'Fed pivot' narrative and tries to convince markets that they have no plans of cutting the policy rate before 2024, US T-bond yields could edge higher and weigh on XAU/USD. However, investors are unlikely to bet on a steady US Dollar rebound before seeing the employment and inflation figures for January. Additionally, the Fed will release its updated Summary of Economic Projections in March and it is likely to refrain from changing its language on the policy outlook until then.

On the last trading day of the week, the US Bureau of Labor Statistics' January jobs report and the US ISM's Services PMI survey will be looked upon for fresh impetus. The wage inflation of the labour market data could influence the US Dollar's valuation. In December, the US Dollar weakened against its rivals despite a stronger-than-expected Nonfarm Payrolls (NFP) growth because Average Hourly Earnings declined to 4.6% on a yearly basis from 5% in November. If the data reveals a further softening of wage inflation in January, the US Dollar could come under selling pressure and help XAU/USD push higher.

Finally, the Prices Paid sub-index of the ISM's PMI report will be watched closely, especially if the Fed's policy statement or Powell points to services inflation as the primary reason behind their willingness to hold the rates steady at high levels. The component is expected to decline to 65.5 from 67.6 in December. A lower-than-consensus print should hurt the US Dollar and provide a boost to XAU/USD and vice versa.

Gold technical analysis

XAU/USD's bullish bias stays intact as the pair continues to trade within the ascending regression channel coming from early November. Furthermore, the Relative Strength Index (RSI) indicator on the daily chart stays above after having corrected from the overbought area above 70.

In case the pair makes a daily close below $1,920 (mid-point of the channel), it could extend the downward correction toward the lower limit of the channel at $1,900. This level is reinforced by the 20-day Simple Moving Average (SMA). If the pair falls below that level and starts using it as resistance, this could be seen as a bearish development and attract sellers. In that scenario, $1,880 aligns as the next short-term support.

On the upside, static resistance seems to have formed at $1,950. Above that level, $1,960 (static level from April) and $1,980 (static level from April) could be seen as next hurdles. With these levels aligning outside the ascending channel, buyers could hesitate to bet on additional gains and await another downward correction.

Gold forecast poll

XAU/USD remains bullish in the short term, according to the majority of experts polled by FXStreet. The average target on the one-week outlook aligns at $1,931. The one-month and the one-quarter outlooks both paint a mixed picture but average targets for these time frames hold above $1,900.