Gold Price Forecast: XAU/USD consolidates above $1,810 as yields ease ahead of key US events

Update: Gold price has entered a phase of upside consolidation above $1,1810 in Wednesday’s Asian trading, as bulls take a breather ahead of the US ADP jobs data and the December Fed meeting’s minutes. Traders rethink the Fed’s rate hike outlook this year, prompting a pullback in the Treasury yields while keeping gold price afloat.

On Tuesday, the bright metal staged an impressive comeback, despite the benchmark 10-year Treasury yields rising to their highest in more than a month. Surging coronavirus cases worldwide, with the US setting a global record of almost 1 million new covid infections, underpinned gold’s safe-haven appeal.

Looking ahead, the key US event risks could further fuel March Fed rate hike expectations, which could likely limit the renewed upside in gold price.

Read: FOMC December Minutes Preview: Gold at the mercy of US T-bond yields

The price of gold (XA/USD) is firmly bid at $1,815 and rises 0.75% following a rise from $1,798.51 to a high of $1,816.81. The US dollar was offered at the end of the European session which helped the precious metal to rally from the lows of the day to test a 61.8% Fibonacci retracement of the hourly drop which leaves XAU/USD consolidating into the Wall Street close. 

In this regard, US stocks were on fire again with the Dow Jones Industrial Average hitting yet another closing record on Tuesday at 36,799.65 points. US data was firm to start the year creating positive vibes amongst traders returning from the holiday season eager for gains.

US data in focus

Investors are betting on a strong recovery as the covid fears abate which sent a wobble into the tech sectors, weighing on the Nasdaq that ended down 1.4% in its biggest decline since December. The S&P 500 was mostly unchanged.

US data showed demand for workers was historically high again in November, with a record 4.5 million Americans quitting their jobs as labour shortages continue to strain employers, though the impact of the latest virus wave has yet to show. 

This week's US Nonfarm Payrolls will be key in this regard and the pace of that momentum in terms of US growth. however, remains at the helm of the Federal Reserve. The minutes of the last meeting will be released on Wednesday.

These are from the December 14-15 Federal Open Market Committee meeting in which Fed Chair Powell confirmed the Fed's intention to begin tapering QE and lift interest rates in 2022. Traders will be paying close attention to the language for clues to when a rate hike could fall as it gears up for a potential rate hike as potentially soon as this quarter to deal with rising inflation.

Meanwhile, ahead of Friday's pivotal December labour market report, Wednesday's ADP employment report will give Wall Street a peak as to how many new jobs were created last month. traders will be looking for an outsized number that could nudge up the current consensus estimate of +422K for December NFP.

As for Omricon, the news could not get much better for markets that tend to err on the more positive side of cautionary optimism. Early laboratory studies have shown the more transmissible variant replicates less efficiently once inside the lung tissue. Scientists are using the word “milder” with much trepidation to describe the illness conferred by the Omicron variant of SARS-Cov-2.

However, it is widely accepted that even if the variant is milder, the sheer number of people it infects might lead to more hospitalisations overall, with healthcare workers having to isolate due to testing positive. Nevertheless, with angst surrounding the omicron variant having sparked a safe-haven bid in gold, it could be vulnerable to some downside if the covid bid is unsound in the CTA space.

Meanwhile, analysts at TD Securities stated that higher gold prices are inconsistent with global markets pricing in a 70% probability for a Fed rate hike in March, which places a cap on prices. ''Participants remain focused on the central bank's exit, but the virus' spread threatens both demand and supply-side forces, which could affect the US growth outlook, suggesting that the Fed may want to remain cautious until the Omicron wave this winter subsides.''

Gold technical analysis

The price is moving into a phase of consolidation while trapped between the support and resistance in the 4-hour chart. There is some mitigation likely on the card to the downside with $1,808 eyed and the same could be said of the upside into $1,821.