Gold Price Forecast: XAU/USD bulls flirt with $1,800 as risk sentiment dwindles

Update: Gold (XAU/USD) seesaws around monthly high of near $1,800, taking a breather after the biggest daily jump in six weeks. That said, the metal pauses two-day uptrend during Friday’s Asian session.

While hawkish central bankers weighed on the US dollar and underpinned the gold’s recent run-up, fresh fears over the coronavirus and deadlock on the US Build Back Better (BBB) aid package seems to challenge the buyers of late. Adding to the upside filters is an absence of major data/events, except for the BOJ monetary policy meeting, after a slew of economics.

A record-high daily COVID-19 infections number in the UK joins the return of stringent mask mandates in Australia’s Queensland to portray the virus-linked fears. It’s worth noting that US President Biden earlier mentioned that Omicron is going to start spreading more rapidly.

Elsewhere, the US Senate that rejected a Democratic proposal over immigration, which in turn stopped the President’s BBB aid package.

Against this backdrop, the US 10-year Treasury yields lick the wounds near 1.42% whereas the S&P 500 Futures fails to ignore Wall Street losses. The same probes gold buyers and allows the US Dollar Index (DXY) to take a breather after the two-day slump.

Moving on, risk catalysts are the key for fresh impulse amid a light calendar.

End of update.

The price of gold is stronger again on Thursday which highlights the asymmetry present in precious metal markets to the hawkish Federal Reserve outlook. At the time of writing, XAU/USD is trading 1.21% higher on the day and has rallied from a low of $1,775.60 to a high of $1,799.46.

The Federal Reserve delivered on the expected doubling of the taper pace and said Wednesday it will begin reducing its asset purchases by $30 billion per month starting in January, up from the current $15 billion pace, amid rising inflation and continued recovery in employment. The central bank's Federal Open Market Committee said after its two-day meeting it would cut monthly Treasury securities purchases by $20 billion and agency mortgage-backed securities acquisitions by $10 billion per month.

Meanwhile, Fed policymakers lifted their projections for core inflation, expecting to finish this year at 5.3%, up sharply from the 4.2% average forecast in September. Next year, inflation is expected to slow to 2.6%, but that was higher than the 2.2% seen three months ago.

However, the dot plot was far more hawkish than the market had expected and above where it was priced. The dot plot now shows a 75bp increase in 2022, above the 50bp consensus, and the Chairman also made it clear that officials are ready to start raising rates well before the labor market returns to its pre-COVID state. 

Nonetheless, the stock market rallied. 'The idea that a gradual tightening in policy can put the economy on a smooth glide-path back to growth and inflation equilibrium is implausible, but after 20 years of ‘buy the dip' the equity market is trained to look on the bright side of life,'' analysts at Societe Generale argued.

This sank the US dollar which has been unable to crack the 97 figure as measured by the DXY index. Real yields falling also culminated in gold prices rising. ''We continue to see the balance of risks tilted towards the upside for the near-term precious metals outlook as positioning that has skewed mainly to the short side in recent weeks is unwound somewhat,'' analysts at TD Securities said.

''With that said, while marginal CTA selling is underway, if the yellow metal can hold the post-FOMC rally north of the $1,787/oz range, systematic funds are likely to target net long positions once again.''

Gold technical analysis

The price would be expected to continue to $1,810 but a restest of the prior resistance near $1,790 could be on the cards imminantly. A break of $1,180 opens the risk to $1,850 for the weeks ahead.