Gold Price Forecast: XAU/USD bulls putting pressure on through $1,800

Update: Shortcoving remains in play following the Federal Reserve outcome and gold (XAU/USD) is firm in Asia. The price is running higher by some 0.22% at the time of writing, rising from a low of $1,798.16 to a high of $1,802.60 on the day so far. The perkiness follows Friday's sharp rise which completed three consecutive day's of higher highs. The bulls ran right into test the $1,814.30s before profit-taking ensued, sinking the price lower to close the day back under $1,800. 

US real yields are lower while omicron fears are also making their way through tp the safe haven plays, likely supporting the precious metal. Meanwhile, US inflation themes will be back on the agenda for the week with PCE data out. ''We expect slowing ahead, but core PCE prices likely rose strongly again, albeit by less than the core CPI (0.42% vs 0.53%),'' analysts at TD Securities said,

''The YoY change likely rose to 4.6% from 4.1%, with total prices up to 5.6% from 5.0%. The report will likely show consumers digging into excess savings, with nominal spending outpacing income (+0.7% vs 0.2%) and the saving rate below its pre-COVID level.''

Additionally, Fedspeak will be important for the remaining days of the year. The analysts at TD Securities are expecting them to echo the more hawkish tone of the Fed, ''which could offer an offsetting factor as macro short-covering runs out of steam.''

End of update

Gold (XAU/USD) prices struggle to keep the biggest weekly gains since early November while taking rounds to $1,800, up 0.25% intraday during the early Asian session on Monday.

While the US dollar weakness and central-bank actions drove markets towards the traditional safe-havens like gold, fresh challenges to the risk appetite and seem to weigh on the yellow metal prices.

Among the key catalysts that spoil the mood, disappointments over US President Joe Biden’s multi-billion-dollars worth of aid package and the jump in coronavirus fears, mainly linked to the South African variant called Omicron, are the latest ones. Also contributing to the risk-off mood could be the fresh chatters over the Fed-rate-hike.

US Democrats seem on the brink of failure to push for voting on the Build Back Better (BBB) plan after the key Senator refused to back the stimulus. “West Virginia's Joe Manchin appeared to deal a fatal blow to President Joe Biden's signature domestic policy bill, known as Build Back Better, which also aims to expand the social safety net and tackle climate change,” said Reuters.

On a different page, COVID-19 woes also escalate, particularly in the West, as the markets approach the holiday season. New York Times said, “Dr. Anthony S. Fauci, the nation’s top infectious disease expert, warned on Sunday that the extraordinarily contagious Omicron variant of the coronavirus was raging worldwide and that it was likely to cause another major surge in the United States, especially among the unvaccinated.”

Not only in the US but the Omicron fears are also on the spike in the UK and Europe. Recently, the Telegraph signaled that UK PM Boris Johnson may announce further activity restrictions for Christmas. The nation registered an all-time high in covid cases, not to forget a 52% jump in the weekly count.

Elsewhere, escalating tussles between the US and China joins the fresh calls of the US Federal Reserve (Fed) rate hike also exert downside pressure on the market sentiment. On Friday, comments from Fed Board of Governors member Christopher Waller propelled the US dollar by saying, per Reuters, “The ‘whole point’ of the Fed's decision to accelerate the pace of its QE taper was to make the March Fed meeting "live" for a first rate-hike.”

Against this backdrop, US 10-year Treasury yields dropped 2.4 basis points (bps) to 1.378% while the S&P 500 Futures drop 0.22% intraday by the press time.

Given the lack of major data/events, gold prices are likely to take clues from risk catalysts and the risk-off mood may challenge the bulls.

Technical analysis

Gold prices fade bounce off an ascending support line from early November, backed by RSI pullback from the overbought territory and receding bullish bias of the MACD.

With this, the quote drops back towards 100-SMA level surrounding $1,784 before testing the stated support line near $1,765. However, the monthly low of $1,753 and September’s bottom close to September’s low around $1,721 will challenge gold bears afterward.

On the flip side, a clear upside break of 200-SMA level of $1,808 will need bullish confirmation from the 50.0% Fibonacci retracement level of a decline from mid-November, near $1,815 to aim for the early November’s swing high near $1,832.

Overall, gold prices are likely to witness a pullback but the stated support line challenges the bears.

Gold: Four-hour chart

Trend: Further weakness expected