Gold Price Forecast: XAU/USD struggles around $1,785 as sentiment sours

Update: Gold (XAU/USD) picks up bids to $1,785, consolidating early Asian losses during Thursday.

The bright metal initially dropped on firmer US Treasury yields while the latest rebound lacks major positives and hence seems tepid, waiting for more clues to convince bears.

The US 10-year Treasury yields rise 1.4 basis points (bps) to 1.52%, up for the fourth consecutive day, whereas S&P 500 Futures print mild losses at the latest as fresh coronavirus fears from the West challenge the previous optimism that the South African covid variant, dubbed at Omicron, is milder than the previous strains. Also weighing on the market sentiment and underpinning the US bond coupons, as well as testing the gold bulls, are the chatters over the US-China and Fed rate hikes.

That said, gold prices remain lackluster as traders await Friday’s US Consumer Price Index (CPI) data to confirm the latest jump in the Fed rate hike expectations.

End of update.

Gold, XAU/USD, is consolidating in the $1,779 and $1,793 range with markets trying to assess the outlook with regards to inflation, central banks and the uncertainty surrounding the Covid-19 variant.

In the Federal Reserve's blackout period, gold prices were little changed on Wednesday while the US dollar slid and offset firmer US Treasury yields ahead of this week's US Consumer Price Index. Investors are likely squaring their positions in the run-up to the key data.

 ''We expect inflation to slow significantly as fiscal stimulus fades and supply constraints ease, but we don't expect the data to be validating in the near term,'' analysts at TD Securities said.

''The CPI likely surged in Nov, with a drop in oil coming too late to avert another large gain in gasoline and core prices boosted by rapidly rising used vehicle prices and post-Delta strengthening in airfares and lodging.''

The data will be important for traders as the monitor for an acceleration in the pace of tapering by the Federal Reserve, potentially to start as soon as this month. 

Hawks may call for a March hike if US November inflation data comes in higher than expected on Friday. Clues as to the probability of a March hike will then be provided by the Fed next week (Dec. 15), when it is expected to announce an accelerated tapering of its bond purchases. Meanwhile, the benchmark US Treasury yields climbed, dimming gold's appeal with the narrative shifting back to central banks' tightening policy, which was likely to boost the US dollar. 

''With inflation prints expected to remain elevated in the early months of the year, the market's pricing for Fed hikes could still become more aggressive, but we expect that it will ultimately prove to be far too hawkish,'' analysts at TD securities argued. 

''In fact, with both an accelerated taper and more than three rate hikes already priced in for 2022, the balance of risks for gold positioning remains to the upside, as geopolitical risks and virus risk could catalyze a positioning reshuffling.''

Gold technical analysis

The price of gold is stuck in familiar territory and the monthly chart illustrates that space is running out for the bulls. A break of the symmetrical triangle opens the risk of a breakout to the downside which could be potentially significant if $1,700 gives out. 

From a daily perspective, the price needs to break beyond the $1,810 level for space to $1,850.