Gold Price Forecast: XAU/USD treads water around $1,925 area, all eyes on FOMC

Gold price struggles to capitalize on the overnight goodish rebound from the $1,900 mark, or a nearly two-week low and edges lower on Wednesday. The XAU/USD remains on the defensive through the first half of the European session and is currently trading just below the $1,925 level. The downside, however, seems cushioned, at least for now, as traders might refrain from placing aggressive directional bets ahead of the key central bank event risk.

Gold price draws support from weaker US Dollar

The Federal Reserve (Fed) will announce its decision at the end of a two-day policy meeting later today and is widely expected to further slow the pace of the rate-hiking cycle. In fact, the CME's FedWatch Tool points to a nearly 100% chance of a smaller 25 basis points (bps) rate hike amid signs of easing inflationary pressures in the United States (US). The bets were reaffirmed by Tuesday's release of the US wage growth data, which showed that labor costs increased less than expected in the fourth quarter. This, in turn, leads to a fresh leg down in the US Treasury bond yields and continues to weigh on the US Dollar. A weaker Greenback could act as a tailwind for the US Dollar-denominated Gold price.

Hopes for hawkish Federal Reserve cap Gold price

The recent US macro data, however, points to a resilient economy and backs the case for the Fed to stick to its hawkish stance for longer. Moreover, Fed officials have been stressing the need to keep rates higher for longer in order to bring down inflation. Hence, the market focus will be on the accompanying monetary policy statement and Fed Chair Jerome Powell's comments at the post-meeting press conference. Investors will look for cues about the Fed's future rate-hike path, which will influence the USD and determine the near-term trajectory for the non-yielding Gold price. In the meantime, the prevalent cautious market mood might contribute to limiting losses for the safe-haven XAU/USD.

Macro data from United States eyed for some impetus

Market participants now look to the US economic docket, featuring the release of the ADP report on private-sector employment, ISM Manufacturing PMI and JOLTS Job Openings. This, along with the US bond yields, could drive the USD demand and produce short-term opportunities around Gold price later during the early North American session. The immediate market reaction to the US macro data, however, is more likely to fizzle out quickly, supporting prospects for an extension of the intraday range-bound price action.

Gold price technical outlook

From a technical perspective, the $1,900 level now seems to have emerged as an immediate strong support. A convincing break below might prompt some technical selling and expose the $1,880-$1,877 support. Gold price could eventually slide to test the next relevant support near the $1,856-$1,855 region, which if broken decisively will shift the near-term bias in favour of bearish traders.

On the flip side, any meaningful upside is likely to confront some resistance near the multi-month top, around the $1,949 region touched on January 26. A sustained strength beyond has the potential to lift the Gold price to the $1,969-$1,970 region. The momentum could get extended further and allow the XAU/USD to surpass an intermediate hurdle near the $1,980 zone. Bulls might then aim to reclaim the $2,000 psychological mark for the first time since March 2022.

Key levels to watch