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Gold Price Forecast: XAU/USD Extends Drawback Ahead of FOMC

Gold Price Forecast: XAU/USD Extends Drawback Ahead of FOMC

Warren Venketas, Analyst

GOLD ANALYSIS & TALKING POINTS

  • Greenback continues to push higher leaving gold exposed to the downside - FOMC in focus.
  • Surge in Chinese COVID cases prompts fears around reintroduced restrictions.
  • 1750.00 handle looks likely to persist as resistance short-term.
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XAU/USD FUNDAMENTAL BACKDROP

Gold is tracking lower this morning on the back of a stronger USD stemming from the build up of relatively hawkish comments from Fed speakers. Although some reiterated the moderation of interest rate hikes going forward, the expectation remains aggressive with peak rates priced in at just over 5% in June next year (see table below).

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FED INTEREST RATE PROBABILITIES

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Source: Refinitiv

After recent optimism around an easing of China’s COVID restrictions, we have seen a recent uptick in COVID cases in certain regions which has quickly reignited the possibility of renewed limitations. From the demand side, China is the worlds largest buyer of gold and question marks about COVID policies will likely dent demand forecasts leaving spot gold vulnerable to additional downside.

With no real market moving events today, the focus will shift to Wednesdays stream of high impact events shown in the economic calendar below. The FOMC minutes will take center stage with a build up of Fed speakers tomorrow who may add to the recent hawkish rhetoric which could keep gold prices depressed.

ECONOMIC CALENDAR

image2.png

Source: DailyFX economic calendar

TECHNICAL ANALYSIS

XAU/USD DAILY CHART

image3.png

Chart prepared by Warren Venketas, IG

Price action on the daily spot gold chart shows prices dipping in line with the recently overbought Relative Strength Index (RSI). Today’s daily candle close will be important for short-term directional guidance in terms of closing above or below the psychological 1750.00 level. Considering fundamentals look skewed to further dollar strength, it is more likely that subsequent support zones will be tested first.

Resistance levels:

  • 1750.00
  • 1767.19

Support levels:

  • 1735.10
  • 1729.46

IG CLIENT SENTIMENT: BULLISH

IGCS shows retail traders are currently distinctly LONG on gold, with 64% of traders currently holding long positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment but due to recent changes in long and short positioning, we arrive at a short-term upside bias.

Contact and followWarrenon Twitter:@WVenketas

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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