Gold Price Forecast: XAU/USD remains depressed near $1,845 area, downside seems limited

• Gold price moves away from a seven-month high amid a modest US Dollar uptick.
• The prospects for smaller rate hikes by the Fed offer some support to the metal.
• A softer risk tone contributes to limiting the downside for the safe-haven XAU/USD.

Gold price comes under some selling pressure on Thursday and snaps a four-day winning streak to its highest level since June 2022, around the $1,865 area touched the previous day. The XAU/USD remains on the defensive heading into the North American session and is currently placed around the $1,846-$1,845 region, down nearly 0.50% for the day.

Modest US Dollar strength undermines Gold price

The US Dollar edges higher in the wake of a hawkish tone from the Federal Open Market Committee (FOMC) December meeting minutes released on Wednesday. This, in turn, is seen as a key factor undermining the US Dollar-denominated Gold price. In fact, the Federal Reserve policymakers were still focused on bringing down inflation and were set to keep interest rates in the US higher for longer.

Focus remains on US Nonfarm Payrolls (NFP)

Market participants also seem inclined to lighten their bearish bets around the US Dollar ahead of Friday's release of the closely-watched US monthly jobs data. The popularly known NFP report could influence the Federal Reserve's rate-hike path and drive the USD demand. This, in turn, will assist investors to determine the next leg of a directional move for the non-yielding yellow metal.

Bets for less aggressive Federal Reserve lends support to Gold price

In the meantime, the prospects for smaller rate hikes by the Federal Reserve keep the US Treasury bond yields depressed near a multi-week low and could lend some support to the non-yielding Gold price. It is worth recalling that Fed officials unanimously agreed that the central bank should slow the pace of aggressive interest rate increases. This, in turn, warrants some caution for bearish traders.

Softer risk tone contributes to limiting losses for Gold price

Apart from this, a generally weaker risk tone might further contribute to limiting the downside for the safe-haven Gold price. Despite the easing of strict COVID-19 restrictions in China, concerns about a deeper global economic downturn continue to weigh on investors' sentiment. This is evident from a fresh leg down in the US equity futures and could act as a tailwind for the safe-haven XAU/USD.

Fundamental backdrop favours bulls

The aforementioned fundamental backdrop suggests that the path of least resistance for the Gold price is to the upside and supports prospects for the emergence of some dip-buying at lower levels. Hence, it will be prudent to wait for strong follow-through selling before confirming that the XAU/USD has topped out in the near term and positioning for any meaningful corrective decline.

Thursday's US macro data could provide some impetus

Traders now look to the US economic docket, featuring the release of the ADP report on private-sector employment and the usual Weekly Initial Jobless Claims. This, along with the US bond yields, will influence the USD price dynamics and provide some impetus to Gold price. Apart from this, the broader risk sentiment might contribute to producing short-term trading opportunities.

Gold price technical outlook

From a technical perspective, any subsequent slide is likely to find support near the previous multi-month high, around the $1,833 area. This is followed by the $1,824-$1,822 horizontal resistance breakpoint, which should now act as a near-term base for Gold price. Failure to defend the said support levels could prompt some technical selling and drag the XAU/USD back towards the $1,800 mark.

On the flip side, the overnight swing high, near the $1,865 zone, could act as an immediate hurdle for Gold price ahead of the $1,870 region. Some follow-through buying will be seen as a fresh trigger for bullish traders and pave the way for a move towards reclaiming the $1,900 round figure for the first time since May 2022. 

Key levels to watch