Gold Price Forecast: XAU/USD retreats towards $1,640 support as risk-on mood fades

Gold price (XAU/USD) struggles to extend the previous day’s recovery from a fortnight low, easing back to $1,650 during Tuesday’s Asian session, as the week-start optimism fades amid a lack of major positives. Also challenging the metal buyers could be the looming fears of market intervention by the Japanese and Chinese policymakers to defend their respective currencies, as well as hawkish Fed bets.

Japanese Finance Minister Shunichi Suzuki said they are keeping a close eye on the fx market with a sense of urgency. The comments become important as the USD/JPY hits the highest levels since 1990. Elsewhere, Reuters quotes six anonymous sources to mention that China's major state-owned banks were spotted swapping yuan for U.S. dollars in the forwards market and selling those dollars in the spot market on Monday morning.

It should be noted that the market’s bets, as per the CME’s FedWatch Tool, suggest a 75 bps Fed rate hike in November, which in turn probe the XAU/USD buyers. The hawkish Fed bets could have recently taken clues from upbeat comments from US Treasury Secretary Janet Yellen, suggesting a strong US jobs market, as well as upbeat US inflation expectations as per the 10-year and 5-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data.

On Monday, the British Finance Minister’s, also called Chancellor, reversal of earlier policy announcements boosted the market’s hope that London will overcome the impending market collapse, which favored the XAU/USD buyers. “Under the new policy, most of Truss's 45 billion pounds of unfunded tax cuts will go and the two-year energy subsidy scheme for households and businesses - expected to cost well over 100 billion pounds - will now be curtailed in April,” stated Reuters.

Also favoring the gold buyers was the downbeat US data. That said, NY Empire State Manufacturing Index for October dropped -9.5 versus -4.0 expected and -1.5 prior.

Alternatively, China’s zero covid policy and determination to keep the power in Hong Kong and Taiwan join the energy crisis in Eurozone to challenge the XAU/USD bulls.

Moving on, a light calendar may allow the metal sellers to go slowly but any positive surprises for the US dollar, in terms of market meddling by Japan and China won’t be ignored.

Technical analysis

Gold price remains inside a five-week-old bearish channel amid sluggish MACD and RSI (14), which suggests the metal stays on the seller’s radar unless crossing the formation’s upper line, around $1,664 by the press time.

Even if the quote rises past $1,664, the 50-EMA hurdle surrounding $1,670 will be important for the XAU/USD bulls to watch before retaking control.

Following that, a one-week-old horizontal resistance area near $1,683 could act as the last defense of the gold bears.

Alternatively, multiple levels marked since September 27 restrict immediate gold price moves near $1,640 ahead of the stated channel’s support line, close to $1,631 at the latest.

Gold: Four-hour chart

Trend: Further weakness expected