Gold Price Forecast: XAU/USD on the defensive below $1,850, focus remains on FOMC

• A combination of factors dragged gold away from over two-month high touched on Tuesday.
• A recovery in the risk sentiment, Fed rate hike bets acted as a headwind for the commodity.
• Rising geopolitical tensions helped limit the downside ahead of the FOMC policy decision.

Gold witnessed some selling on Wednesday and moved further away from the highest level since November 19, around the $1,854 region touched in the previous day. The XAU/USD remained depressed through the first half of the European session and was last seen flirting with the daily low, near the $1,845 zone.

The pullback could be attributed to some repositioning trading ahead of key central bank event risk – the outcome of a two-day FOMC policy meeting. It is worth recalling that the markets have fully priced in an eventual Fed lift-off in March and expect a total of four hikes in 2022. Hence, investors will look for fresh clues over the likely timing of when the US central bank will commence its policy tightening cycle. This, in turn, will play a key role in determining the next leg of a directional move for the non-yielding gold.

In the meantime, elevated US Treasury bond yields and expectations for a faster policy tightening by the Fed continue underpinning the US dollar. This, in turn, is seen as a key factor that is acting as a headwind for the dollar-denominated gold. Apart from this, a strong recovery in the global risk sentiment – as depicted by a generally positive tone around the equity markets – is driving flows away from the safe-haven precious metal. The downside, however, seems cushioned amid concerns about geopolitical tensions over Ukraine.

In the latest developments, the United States put 8,500 troops on alert to be ready to deploy in case of an armed conflict. President Joe Biden said that he would consider personal sanctions against President Vladimir Putin, while Britain urged its European allies to have sanctions ready if Russia invades Ukraine. This, in turn, might hold back traders from placing aggressive bearish bets and help limit losses for gold.

Technical outlook

From a technical perspective, the emergence of some dip-buying near the $1,830 horizontal resistance breakpoint supports prospects for additional near-term gains. Hence, a subsequent strength towards testing a downward-sloping trend-line extending from the June 2021 swing high, currently around the $1,860 region, remains a distinct possibility. A convincing breakthrough would be seen as a fresh trigger for bullish traders and pave the way for an extension of the recent move up witnessed over the past one month or so.

On the flip side, any meaningful slide might still be seen as a buying opportunity near the $1,830 region. A convincing break below might prompt some technical selling and accelerate the fall towards the $1,812 zone. This is followed by the very important 200-day SMA, currently around the $1,805 region and an upward sloping trend-line support, extending from the August 2021 swing low, currently around the $1,797 region. Some follow-through selling will negate the near-term positive bias and make gold vulnerable.

Gold daily chart

Levels to watch