Gold Price Forecast: XAU/USD flirts with $1,765 support as risk aversion underpins US Dollar

Gold price (XAU/USD) remains pressured around $1,770, struggling with short-term key support during the early Asian session on Wednesday. The metal’s latest weakness could be linked to the market’s sour sentiment that underpinned the US Dollar’s rebound, as well as the Covid-linked optimism in China. It’s worth noting, however, that a light calendar and mixed updates surrounding the US Federal Reserve (Fed) seemed to have challenged the XAU/USD moves.

Risk-off mood weighs on the Gold price

Following an upbeat start to Tuesday’s trading, Gold price witnessed downside pressure as risk appetite soured after multiple warnings of grim economic conditions from multiple US banks and downbeat earnings. Among them were the United States Heads of Goldman Sachs, Bank of America Corp and JPMorgan Chase. Additionally, Bloomberg Economics also forecasted the lowest economic growth since 1993, to 2.4% for 2023.

It’s worth noting that escalating tension between European Union (EU) and Russia, as well as between Kyiv and Moscow, also exerts downside pressure on the Gold price by favoring the rush to risk safety. That said, the Oil price cap and Ukraine’s drone attack in Russia are the key catalysts fueling the risk-aversion of late.

Concerns over Federal Reserve keep XAU/USD bears hopeful

Officials from the Federal Reserve (Fed) are on the pre-Federal Open Market Committee (FOMC) blackout and hence the Fed talks are absent. However, the last dossier from the policymakers wasn’t confirming the previous bearish bias due to the strong United States employment report for November.

That said, the US Nonfarm Payrolls (NFP) surprised markets by rising to 263K versus 200K expected and an upwardly revised prior of 284K while the Unemployment Rate matched market forecasts and prior readings of 3.7% for November. Following the upbeat data, Chicago Fed President Charles Evans said, "We are probably going to have a slightly higher peak to Fed policy rate even as we slow pace of rate hikes.”

Following that, Monday’s strong prints of the United States ISM Services PMI also bolstered the hawkish hopes of the Fed. That said, the private services gauge rose to 56.5 in November versus 53.1 market forecast and 54.4 previous readings whereas the Factory Orders also registered 1.0% growth compared to 0.7% expected and 0.3% prior. Further, S&P Global Composite PMI improved to 46.4 versus 46.3 initial estimations.

On Tuesday, US Goods and Services Trade Balance deteriorated to $-78.2 billion versus $-79.1 billion expected and $-73.28 billion prior.

It should, however, be noted that the recent downside in the US inflation expectations challenges the hawkish concerns surrounding the Federal Reserve’s (Fed) next move and hence challenge the Gold sellers. US inflation expectations, as per the 10-year and 5-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data, extend the previous retreat from a one-month high by printing the second day of downside. The latest prints of the 5-year and 10-year inflation expectations are 2.38% and 2.43% respectively.

China defends Gold buyers

Being one of the biggest Gold consumers an increase in optimism surrounding China challenges the Gold sellers. That said, the dragon nation is up for conveying more easing to its three-year-old Zero-Covid policy on Wednesday, per Reuters. Beijing’s latest move could be linked to the receding virus infections from the record high, as well as multiple announcements suggesting more unlocking of the virus-hit economy that’s the second biggest in the world.

To sum up, Gold price struggles for clear directions amid mixed clues but remains on the bear’s radar as sentiment sours.

Gold price technical analysis

Having failed to cross a two-month-old ascending resistance line, the Gold price dropped to the 100-bar Simple Moving Average (SMA).

However, a failure to stay much beyond the key SMA level joins the bearish signals from the Moving Average Convergence and Divergence (MACD) indicator and the normal conditions of the Relative Strength Index (RSI) line, placed at 14, to suggest a further extension of the downbeat moves.

That said, a convergence of the 100-SMA and upward-sloping support line from November 08 highlights $1,765 as the short-term key support to watch for the Gold price traders.

In a case where the XAU/USD bears manage to smash the said support confluence near $1,765, a horizontal area comprising multiple levels marked since October 04, close to $1,730, should gain major attention.

Meanwhile, Gold price recovery could aim for the $1,780 and the mid-November swing high surrounding $1,786 before targeting the $1,800 threshold.

Following that, the monthly high near $1,810 and the previously mentioned multi-day-old resistance line around $1,813 might challenge the XAU/USD bulls.

Overall, the Gold price remains pressured around the short-term key support with a preferred move on the downside.

Gold price: Four-hour chart

Trend: Further weakness expected