Gold Price Forecast: XAU/USD seesaws around $1,920s with traders bracing for US FOMC’s decision

Gold price trades mostly sideways due to investors preparing for the US Federal Reserve Open Market Committee (FOMC) meeting, which will begin on Tuesday. Most analysts estimate the US Federal Reserve (Fed) would increase rates by 25 bps, though they will be looking for cues about future meetings. Therefore, the XAU/USD exchanges hands at $1,928.45 a troy ounce at the time of writing.

US Q4 GDP supports Fed’s decision to go 25 bps

Wall Street opened mixed ahead of an important week for the economy of the United States (US). Last week’s data, led by the Advanced Gross Domestic Product (GDP) release for Q4, stood at 2.9%, above estimates of 2.6% QoQ, portraying a strong economy. Nevertheless, it decelerated compared to Q3’s 3.2%, further confirmed by data from the US Department of Commerce (DoC). That said, financial analysts have priced in a 25 bps rate increase to the US Federal Funds rate (FFR).

Fed’s inflation measure, core Personal Consumer Expenditure, stumbles for four consecutive months

Another reason that justifies lower-size moves is inflation. The Fed’s preferred inflation gauge, the US Core Personal Consumption Expenditures (PCE), came at 4.4% YoY, aligned with estimates but lower than November’s 4.7%. Inflation has fallen for four straight months, supporting some Fed officials expressing the need to lower the pace of rate hikes but emphasizing that no cuts are foreseen for 2023.

The University of Michigan’s Consumer Sentiment improved, and inflation expectations fell

Additionally, inflation expectations reported by a survey of the University of Michigan (UoM), portrayed American consumers estimated elevated prices would fall. Inflation in one year is expected at 3.9%, while for a 5-year horizon, it would fall from 3% to 2.9%. Consumer Sentiment improved as well, from 59.7 to 64.9 in January.

Given the backdrop, a Fed’s pause on its tightening cycle could bolster demand for Gold. Furthermore, if US Treasury bond yields commence edging lower, that would undermine the Greenback and boost XAU/USD, which could rally towards the $2,000 mark.

At the time of typing, US Treasury bond yields rise three basis points (bps), and edge up to 3.535%, while the Greenback is almost unchanged. The US Dollar Index (DXY), which tracks the buck’s value against a basket of peers, is up 0.01%, at 101.930.

Gold Price Analysis: Technical outlook

XAU/USD’s price action remains subdued, influenced by fundamental reasons. After peaking at $1,949.16, Gold slumped towards $1,916.72 last Friday, and prices remain trapped within the $1,920-35 range. In addition, oscillators like the Relative Strength Index (RSI) and the Rate of Change (RoC) are slightly skewed to the downside, but the RSI’s still in bullish territory.

If the XAU/USD extends its gains above the top of the range, the next stop would be the YTD high at $1,949.16, followed by the $2,000 psychological level. On the other hand, the XAU/USD breaking support would send the yellow metal slumping towards $1,900, followed by the 20-day Exponential Moving Average (EMA) at $1,899.75, and then January’s 18 low of $1,896.74