Gold Price Analysis: XAU/USD going sideways in $1790 area ahead of US data/central bank packed week

Spot gold (XAU/USD) prices are going sideways in the $1790 area amid a quiet start to a busy week of central bank policy decisions and important economic data releases. The subdued tone to trade is not surprising given the lack of price action in FX and bond markets, where the DXY is consolidating close to recent highs above 97.00, as are bond yields, with the US 10-year just under 1.80%.

As attention turns to the US January ISM PMI surveys scheduled for release on Tuesday and Thursday ahead of the release of the official January labour market report on Friday, XAU/USD is looking vulnerable from a technical perspective.

Gold clatters below key support

Gold’s swift sell-off in the latter three days of last week that saw it drop more than 3.0% from around the $1850 level has seen the precious metal clear a number of key areas of support to the downside.

First, spot gold broke below an upwards trend channel that had been in plan since mid-December and secondly, spot prices broke below the 21, 50 and 200DMAs between the $1800-$1820 levels. For now, annual lows in the $1780s are offering support, but a break below here would open the door to a test of the December lows near $1750.

Hawkish Fed vibes weigh on gold

Federal Reserve Bank of Atlanta Raphael Bostic, whilst sticking to his expectation that the Fed would hike rates three times this year, hinted over the weekend that significantly more rate hikes could be in order should the data require it. He also openly hinted at the possibility that the Fed could depart from its usual policy of implementing 25bps moves by hiking interest rates by 50bps if required.

His remarks come on the back of last week’s hawkish Fed policy announcement that triggered speculation of as many as seven rates hikes in 2022 from some US banks, speculation which at the time hit gold hard (and benefitted the US dollar and US yields).

Upcoming jobs report key

On a week where strong US data could spur further hawkish speculation, gold also looks vulnerable from a fundamental perspective. Friday’s jobs report will be the most important metric to keep an eye on, with measures of labour market slack (unemployment and participation rate) and wage inflation (average hourly earnings growth) more important than the headline NFP number.

That is expected to be weak due to the spread of Omicron dissuading workers from returning to the workforce. Some analysts are calling for gold to head lower to $1600 if the wage and inflation data in the coming weeks (ahead of the March Fed meeting) suggests more persistent inflationary pressures than expected by the Fed.