Gold Price Forecast: XAU/USD inches back closer to $1,800 amid Omicron variant fears

Update: Gold climbed to a fresh daily high, around the $1,795-96 region heading into the European session, though lacked any follow-through and remained well within a one-week-old trading range. Investors remain worried about the potential economic fallout from the spread of a new vaccine-resistant variant of the coronavirus – Omicron. This was evident from a fresh wave of a risk-aversion trade in the equity markets, which continued boosting demand for traditional safe-haven assets. The anti-risk flow turned out to be a key factor that assisted the XAU/USD to attract fresh buying near the $1,780 horizontal support.

The global risk sentiment was further hit by comments from Moderna’s Chief Executive Stéphane Bancel, saying that existing vaccines will be much less effective at tackling Omicron than earlier strains of Covid-19. The latest developments surrounding the coronavirus saga forced investors to scale back their expectations for an early policy tightening by the Fed. Apart from this, risk-off impulse in the markets led to a further decline in the US Treasury bond yields and weighed heavily on the US dollar. This, in turn, was seen as another factor that benefitted the dollar-denominated gold, though the uptick lacked bullish conviction.

Hence, it will be prudent to wait for a strong follow-through buying before confirming that the recent pullback from the $1,877 area, or a multi-month high has run its course and placing fresh bullish bets. Market participants now look forward to the US economic docket, highlighting the release of the Conference Board's Consumer Confidence Index. The focus, however, will remain on Fed Chair Jerome Powell's testimony before the Senate Banking Committee. This will influence market expectations about the Fed's next policy move and provide a fresh impetus to the non-yielding gold.

Previous update: Gold (XAU/USD) refreshes intraday high to $1,788 during early Tuesday, stays within the short-term trading range above $1,780.

The pullback in the US Treasury yields and firmer equities favor gold buyers to bounce off an immediate key support line. However, looming concerns over the South African variant of the coronavirus, dubbed as Omicron, joins anxiety ahead of the week’s key events to restrict the commodity’s moves.

While portraying the mood, the US 10-year Treasury yield drop 1.8 basis points (bps) to 1.51% while the S&P 500 Futures rise 0.30% by the press time. It’s worth noting that shares in Asia-Pacific markets print gains at the latest.

China’s first in three-month above 50 NBS Manufacturing PMI reading for November offers the immediate positive to the market’s mood. Before that, US President Joe Biden’s rejection of lockdown’s need and Fed Chair Jerome Powell’s acceptance of the covid challenges for inflation and jobs report while also backing reflation fears favored market sentiment. Further, US Treasury Secretary Janet Yellen tried placating market pessimism while pushing Congress to overcome the US debt limit deadlock, as well as highlighting the strength of the US economy.

Furthermore, global medicine supplies’ optimism to have the vaccines for the strain and policymakers’ ability to take quick measures to tame the Omicron breakout favor the bulls. Additionally keeping the market players hopeful is the current conditions of the global economies versus the initial days of the pandemic.

Meanwhile, the updates from the US military posture highlights Sino-American tussles and exert downside pressure on the risk appetite. Further, the market’s anxiety ahead of the week’s key data, like Fed Chair Jerome Powell’s testimony and jobs report for November, also probe the risk-on mood.

Other than the testimonies, for which the written scripts are already out, US CB Consumer Confidence for November and covid updates will also be important for markets ahead of Friday’s jobs report.

Overall, gold prices are likely to grind lower amid static hopes of the Fed’s tightening due to the reflation fears.

Read: Omicron covid update: Wait and see, meanwhile, traders buy the dip

Technical analysis

Gold prices grind between a five-week-old horizontal area and an ascending support line from late September. However, steady RSI and receding bullish bias of the MACD signals that the sellers are bracing for entries.

Even so, a clear downside break of the stated support line, around $1,785 by the press time, won’t be enough as multiple levels around $1,780 also challenge gold bears.

Though a clear downside past $1,780 will make the quote vulnerable to test the monthly low near $1,753, with $1,771-70 acting as an intermediate halt.

Meanwhile, sustained run-up beyond $1,815 will get a conviction on crossing November 09 swing high near $1,833.

Following that, gold can quickly target the $1,850 hurdle whereas the $1,870 and the monthly peak of $1,877 could entertain the bulls afterward.

Gold: Four-hour chart

Trend: Further weakness expected