Gold Price Forecast: XAU/USD hits one-week low, hangs near $1,900 mark on stronger USD

• Gold price drops to over a one-week low on Tuesday amid notable US Dollar strength.
• Bets for a less aggressive Federal Reserve to cap the USD and lend support to the metal.
• A weaker risk tone could also contribute to limiting losses for the safe-haven XAU/USD.
• Traders might further prefer to wait for the crucial FOMC policy decision on Wednesday.

Gold price extends its recent retracement slide from the vicinity of the $1,950 level, or a nine-month high touched last week and remains under some selling pressure on Tuesday. The XAU/USD continues to lose ground through the first half of the European session and drops to over a one-week low, closer to the $1,900 mark in the last hour.

Stronger US Dollar weighs on Gold price

The US Dollar (USD) gains traction for the second successive day and climbs to a one-week high, which, in turn, is seen driving flows away from the US Dollar-denominated Gold price. The uncertainty over the Federal Reserve's (Fed) future rate hike path turns out to be a key factor prompting traders to lighten their USD bearish bets. In fact, the markets have been expecting the Fed to further moderate the pace of its policy-tightening cycle. That said, the recent US macro data pointed to an economy that is resilient despite the rapidly rising borrowing costs and backed the case for the Fed to stick to its hawkish stance for longer.

A combination of factors to limit losses for Gold price

Nevertheless, the CME's FedWatch Tool still points to a nearly 100% chance of a smaller 25 basis points (bps) rate hike at the end of a two-day Federal Open Market Committee (FOMC) meeting on Wednesday. This leads to a fresh leg down in the US Treasury bond yields, which is holding back the USD bulls from placing aggressive bets and might lend support to the non-yielding Gold price. Adding to this, the prevalent cautious mood - as depicted by a generally weaker tone around the equity markets - could also contribute to limiting losses for the safe-haven XAU/USD. This, in turn, warrants some caution before positioning for any further downside.

Investors remain sceptic about a strong recovery in the Chinese economy amid the worst yet COVID-19 outbreak in the country. This, to a larger extent, overshadows the better-than-expected Chinese PMI prints released earlier this Tuesday, which showed that business activity in both manufacturing and services sectors swung back to growth in January. Apart from this, the protracted Russia-Ukraine war has been fueling recession fears and keeping a lid on any optimism in the markets. Hence, it will be prudent to wait for strong follow-through selling before confirming that the Gold price has formed a near-term top and positioning for a deeper corrective pullback.

Traders eye macro data from the United States for some impetus

Market participants now look forward to the US economic docket, featuring the release of the Chicago PMI and the Conference Board's Consumer Confidence Index. This, along with the US bond yields, might influence the USD price dynamics and provide some impetus to Gold price. Apart from this, traders will take cues from the broader risk sentiment to grab short-term opportunities around the XAU/USD.

Gold price technical outlook

From a technical perspective, sustained weakness below the $1,900-$1,895 region 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, the $1,925-$1,926 horizontal zone now seems to act as an immediate hurdle ahead of the multi-month peak, around the $1,949 region. 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 bulls to surpass an intermediate hurdle near the $1,980 zone, towards reclaiming the $2,000 psychological mark for the first time since March 2022.

Key levels to watch