Gold Price Forecast: XAU/USD dribbles above $1,600 as inverted hammer contrasts risk-aversion

• Gold price defends corrective bounce off yearly low, sidelined of late.
• Risk-aversion intensified as Russian gas pipeline leak joins pessimism in the UK.
• Firmer US data, hawkish Fedspeak and stronger yields adds strength to the bearish bias for XAU/USD.
• Bullish candlestick can play its role if Fed’s Powell resists praising hawks.

Gold price (XAU/USD) struggles to find acceptance at around $1,630, despite bullish technical signals, as fears of the European energy crisis join firmer yields to propel the US dollar. That said, the cautious mood ahead of a speech from Fed Chairman Jerome Powell also weigh on the metal prices during early Wednesday in Asia.

Multiple leaks in Russia’s gas pipeline in the Baltic Sea raise woes that the Eurozone’s energy supply problems are likely to be permanent. The same intensify fears of recession inside the bloc, especially amid an absence of impressive data and inflation fears. That said, Reuters quoted European Commission Chief Ursula von der Leyen on Tuesday saying, “The leaks of the Nord Stream pipelines were caused by sabotage, and warned of the "strongest possible response" should active European energy infrastructure be attacked.” This adds to the market’s fears of more geopolitical tension between the West and Russia.

On the same line could be the multiple rating agencies, including Moody’s, as well as the international institutions like the International Monetary Fund (IMF), which criticized the UK government’s latest approach.

Furthermore, firmer US Durable Goods Orders and CB Consumer Confidence data joined hawkish Fedspeak to impress the greenback buyers. US Durable Goods Orders declined by 0.2% in August versus the market forecasts of -0.4% and the revised down prior reading of -0.1%. Additionally, US CB Consumer Confidence improved for the second consecutive month to 108.00 for September versus 104.5 expected and 103.20 prior.

"At some point, it will be appropriate to slow the pace of rate increases and hold rates for a while to assess the impact on the economy," Chicago Fed President Charles Evans said on Tuesday, as reported by Reuters. St. Louis Federal Reserve Bank President James Bullard said on Tuesday that they have a serious inflation problem in the US, as reported by Reuters. "More rate rises to come in future meetings." Minneapolis Fed President Neel Kashkari said the central bank is moving "very aggressively," and there is a high risk of "overdoing it." 

It’s worth noting that the rally in the global bond yields, led by the UK’s gilt, joined downbeat equities to add strength to the bearish bias for the XAU/USD.

Looking forward, a light calendar could keep the metal pressured amid fears for the bloc, the UK  and the market’s rush for risk safety. However, speeches from ECB President Christine Lagarde and Fed Chair Jerome Powell may entertain the pair buyers if they speak about matters relating to the monetary policy.

Technical analysis

Gold price prints mild gains around the two-year low marked the previous day as a bullish candlestick, inverted hammer, joins oversold RSI (14).

The recovery moves, however, need validation from a convergence of the 10-DMA and a two-week-old resistance line, around $1,655, to convince the XAU/USD buyers. Also challenging the metal buyers could be the bearish MACD signals.

Meanwhile, a downside break of the latest bottom surrounding $1,620 will defy the bullish signs and can direct the metal initially towards the $1,600 threshold before directing the bears to the lower line of the broad bearish channel stretched from March, near $1,572 by the press time.

Overall, the gold price may witness a corrective bounce but the trend reversal has a long way to go.

Gold: Daily chart

Trend: Limited upside expected