Gold Price Forecast: XAU/USD bulls run out of steam amid mixed markets, rising wedge in focus

Gold price (XAU/USD) seesaws around $1,938 as bulls take a breather inside a bearish chart pattern during early Wednesday. In doing so, the bright metal depicts the market’s mixed feelings amid downbeat data from the United States, as well as the cautious mood ahead of the next week’s Federal Reserve (Fed) meeting. Even so, the US Dollar weakness and optimism surrounding Europe, as well as China, appears to favor the XAU/USD bulls.

Lack of clarity in the market probes Gold buyers

Although the Gold buyers keep the reins for the sixth consecutive week, the mixed signals from global markets and the Federal Reserve’s (Fed) silence period ahead of next week’s Federal Open Market Committee (FOMC) seem to restrict the XAU/USD moves. Also challenging the Gold traders could be the one-week-long holidays in China due to the Lunar New Year (LNY) celebrations. It’s worth noting that the European Central Bank (ECB) officials also sneak into the pre-monetary policy blackout starting today and adds barriers to the Gold price moves. While portraying the sentiment, the US 10-year Treasury yields dropped five basis points (bps) to 3.455% but Wall Street closed mixed.

Downbeat US Dollar favors XAU/USD bulls

Despite the mixed sentiment, the US Dollar weakness favors the Gold buyers due to the inverse relationship between the XAU/USD and the greenback. It’s worth noting that the US Dollar Index (DXY) remains indecisive near 101.90 after printing a two-week downtrend in the last. In doing so, the greenback’s gauge versus the six major currencies takes clues from the market’s bearish bias for the next week’s Fed meeting, as well as highlights the downbeat US data.

That said, preliminary readings of the US S&P Global Manufacturing PMI for January rose past 46.2 market forecast and 46.1 market expectations with 46.8 figure while the Services PMI followed the suit with the 46.6 figure for the said month, versus 44.5 forecast and 44.7 prior. That said, the S&P Global Composite PMI for January increased to 46.6 from 45.0 prior and the 44.7 consensus, marking the seventh consecutive read below 50. 

Following the US data, the US Dollar Index (DXY) managed to rise for a brief time before closing in the red. The reason could be linked to the comments from Chief Business Economist at S&P Global Chris Williamson who said, “The US economy has started 2023 on a disappointingly soft note, with business activity contracting sharply again in January."

Considering the downbeat US data, markets widely anticipate a 0.25% Fed rate hike and the policy pivot in the next week. As a result, the Gold buyers appear pricing in the expected outcome.

Europe, China-linked optimism also strengthens Gold price

Even if China is off the market for the Lunar New Year celebrations, the positive vibes emanating from the reopening of the world’s largest commodity user keep Gold buyers hopeful. Also underpinning the XAU/USD upside could be the expectations of strong festive demand. It’s worth noting that the recent challenges to the US-China ties due to the alleged Chinese connection to the Russian war seem to probe the optimism.

Elsewhere, the latest activity data from Europe appear to help the traders optimistic about the old continent. That said, Eurozone S&P Global Manufacturing PMI crossed the 48.5 market forecasts and 47.8 previous readouts with 48.8 figure for January. Further, the Services PMI also impressed Euro bulls with 50.7 mark versus 50.2 expected 49.8 prior. With this, the Composite PMI for the bloc increased to 50.2 from 49.3 previous readings and 49.8 market forecasts. Following the data releases, Chris Williamson, Chief Business Economist at S&P Global said, “A steadying of the Eurozone economy at the start of the years adds to evidence that the region might escape recession.”

US Gross Domestic Product is the key

While the United States Durable Goods Orders and the second-tier employment data could also entertain the Gold buyers, major attention will be given to the first readings of the US Gross Domestic Product (GDP) for the fourth quarter (Q4). The reason appears logical due to the next week’s Federal Reserve (Fed) meeting, as well as the talks of the US recession. Forecasts suggest the world’s biggest economy eases with 2.8% annualized growth.

Also read: US Gross Domestic Product Preview: Three reasons to expect a US Dollar-boosting outcome

Gold price technical analysis

Despite the mildly bid performance of late, the Gold price stays inside a one-week-old rising wedge bearish chart pattern. The bearish bias also gains support from the Relative Strength Index (RSI) line, placed at 14, as well as the mixed signals from the Moving Average Convergence and Divergence (MACD) indicator.

As a result, the XAU/USD is likely to grind higher unless staying between $1,944 and $1,916 levels. However, the oscillators, namely the RSI and MACD, tease the bears and hence a downside break of $1,916 could gain more response than the otherwise conditions.

In that case, a one-month-old ascending trend line and the 100-Simple Moving Average (SMA), respectively near $1,896 and $1,890, will be crucial to watch before expecting the Gold price downside toward the theoretical target of $1,870.

On the flip side, a successful break of $1,944 will defy the bearish chart pattern and could propel the XAU/USD toward March 2022 peak surrounding $1,966.

Should the Gold buyers keep the reins past $1,966, the odds of witnessing the $2,000 on the chart can’t be ruled out.

Gold price: Four-hour chart

Trend: Further weakness expected