Gold Price Forecast: XAU/USD bears approach $1,800 as risk-aversion triggers USD rebound

Gold (XAU/USD) drops for the second consecutive day, taking offers around $1,808 to refresh the intraday low heading into Wednesday’s European session, as sour sentiment joins the firmer US dollar.

The market’s early-week optimism fades as China reports higher covid cases while the European Union (EU) and the US prepare for more hardships for Russia, due to Moscow’s invasion of Ukraine.

That said, Reuters reported an increase in Mainland China’s daily covid cases, to 1,305 from 1,100 prior while the virus-led death count also rose to three from one. Elsewhere, a third straight monthly fall in the foreign investment into the Chinese Yuan bonds also highlights the risk-off mood. Furthermore, chatters over the European Commission’s (EC) plan to move away from Russian energy imports also weigh on the sentiment.

It’s worth noting that comments from Chicago Fed President Charles Evans also seem to have weighed on the market’s mood by renewing fears of a faster rate hike as the policymaker said, “(the Fed) Should raise rates to 2.25%-2.5% neutral range 'expeditiously'.” On Tuesday, Fed Chair Jerome Powell and a generally-hawkish St Louis Fed President James Bullard pushed for a 50 bps rate hike and weighed on the USD.

Amid these plays, the US 10-year Treasury yields dropped 0.5 basis points (bps) to 2.966% whereas the S&P 500 Futures decline 0.40% intraday even as Wall Street posted heavy gains.

Looking forward, fresh catalysts defining the risk profile will be important for gold traders whereas US Housing Starts and Building Permits for April will join Fedspeak to offer extra directives.

Technical analysis

A failure to cross the May 11 swing low presently drags gold prices towards three-day-old horizontal support around $1,800.

However, RSI (14) is near the oversold territory and hence any further downside past $1,800 becomes less expected, which if happens will highlight the monthly low near $1,787 as another opportunity for buyers to sneak in.

Should the gold prices remain bearish below $1,787, the 61.8% Fibonacci Expansion (FE) of May 05-17 moves, near $1,760 will be in focus.

Alternatively, the weekly falling trend line and the latest peak restrict the XAU/USD’s short-term recovery near $1,835.

Following that, the 200-HMA level surrounding $1,842 will act as the last defense for the gold sellers.

Gold: Hourly chart

Trend: Limited downside expected