Gold Price Forecast: XAU/USD holds gains amid risk aversion and falling yields

• Gold remains above $2030, supported by US Dollar strength despite falling US bond yields.
• US economic data shows improved small business sentiment and a narrowing trade deficit, impacting gold dynamics.
• Investors await US CPI data for further direction, with Gold's movement likely influenced by inflation expectations.

Gold price clings to decent gains above 0.15% during the mid-North American session on Tuesday, amid risk aversion, alongside overall US Dollar (USD) strength across the board. US Treasury bond yields had erased their previous gains, a tailwind for the yellow metal, which has an inverted correlation, particularly with the 10-year benchmark note yield. At the time of writing, XAU/USD trades at $2030 after hitting a daily low of $2026.17.

XAU/USD rises, although US bond yields are dropping

Risk aversion is the name of the game; although it is boosting Gold’s price, the Greenback is gaining some ground against the non-yielding metal. The economic calendar in the United States was scarce, though it revealed the NFIB Business Optimism Survey for December, which showed small business sentiment improved for the first time in five months, though it remains below its 50-year average of 98, came at 91.90.

The US Department of Commerce announced that the US trade deficit narrowed as the Trade Balance for November came at $-63.2 billion, less than estimates of $-65 billion and October’s $-64.5 billion.

That sponsored XAU/USD’s leg up toward its daily high of $2042.01 before retreating toward current spot prices. Although US Treasury bond yields remain depressed, the Greenback posted solid gains, as shown by the US Dollar Index (DXY). The DXY, a basket of six currencies vs. the US Dollar, climbs 0.20% at 102.49.

Meanwhile, Gold’s price action is expected to remain constrained as traders brace for December’s inflation data in the United States. The Consumer Price Index (CPI) is expected to tick up by 3.3% YoY, while the core is expected at 3.8% YoY, lower than the previous reading.

XAU/USD Price Analysis: Technical outlook

Gold’s daily chart portrays the yellow metal upward bias after finding support at the 50-day moving average (DMA) tested Monday, with the level rejecting lower prices. This is despite posting losses of almost 1% yesterday. Although buyers have regained some control, downside risks remain if XAU/USD slides below today’s low of $2026, opening the door to challenge the 50-DMA at $2014, ahead of testing the $2000 figure. On the flip side, the XAU/USD first resistance would be $2050, followed by the January 5 daily high at $2063.98.