Gold Price Forecast: XAU/USD struggles near weekly low amid renewed USD buying

Following a brief consolidation through the early part of trading, gold witnessed a fresh bout of selling on Thursday and retreated further from a one-week high touched on the previous day. Intraday selling picked up pace during the early North American session and dragged the XAU/USD back closer to the weekly low, below the $1,775 level in the last hour. This marked the second successive day of a negative move in the yellow metal and was sponsored by renewed US dollar buying interest, which tends to drive flows away from the dollar-denominated commodity.

The USD was back in demand amid hawkish Fed expectations and reversed a part of the overnight profit-taking slide. Investors seem convinced that the Fed will be forced to tighten its monetary policy sooner rather than later to contain stubbornly high inflation. This was seen as another factor that undermined demand for non-yielding gold. That said, the risk-off impulse – as depicted by a generally weaker tone around the equity markets – extended some support to traditional safe-haven assets and helped limit losses for the XAU/USD.

Mixed headlines on the Omicron variant of the coronavirus kept a lid on the recent optimism. BioNTech and Pfizer said on Wednesday that a three-shot course of their COVID-19 vaccine was able to neutralise the Omicron variant in a laboratory test. This was overshadowed, however, by the fact that the UK Prime Minister Boris Johnson on Wednesday imposed fresh COVID-19 restrictions in England to slow the spread of the new variant. Along with escalating geopolitical tensions, this tempered investors' appetite for perceived riskier assets.

Investors might also refrain from placing aggressive bets, prefering to wait for a fresh catalyst from Friday's release of the latest US consumer inflation figures. The US CPI report will provide fresh clues as to the Fed's next policy move on interest rates. This, in turn, will influence USD price dynamics and gold prices heading into next week's FOMC monetary policy meeting. Hence, it will be prudent to wait for strong follow-through selling before positioning for any further depreciation.

Technical outlook

From a technical perspective, the overnight rejection near a technically significant 200-day SMA and the subsequent downfall favours bearish traders. Gold seems poised to prolong its recent corrective slide from a multi-month high and retest the monthly swing low, around the $1,762 area touched last week.

On the flip side, sustained strength beyond the 200-DMA, which coincides with 100-day SMA, would be needed to support prospects for any meaningful upside. Spot prices could then surpass the $1,800 mark and test the next relevant resistance near the $1,810-15 supply zone. The momentum could further get extended towards the $1,832-34 strong horizontal barrier, which should act as a key pivotal point for short-term traders.

Gold daily chart

Key levels to watch