Gold Price Forecast: Strong US Dollar signals XAU/USD fall towards sub-$1,800 zone

• Gold price remains pressured near two-month low, following consecutive four weekly declines.
• Strong United States data underpin US Dollar strength and weigh on XAU/USD.
• Firmer US Treasury bond yields, geopolitical fears also exert downside pressure on Gold price.
• More clues of US inflation will be eyed for short-term XAU/USD direction.

Gold price (XAU/USD) stays depressed at the lowest levels in two-months after declining in the last five consecutive days, as well as printing four-week south-run. That said, the yellow metal begins the week’s trading on a back foot around $1,810 as bears cheer strong US Dollar amid upbeat United States economics. Among the US data, the Federal Reserve (Fed) favored inflation gauge offered major blow to the XAU/USD price.

Gold price slumps as US Dollar jumps

Gold price dropped in the last four consecutive weeks, as well as five days in a row, as the US Dollar marked the biggest weekly jump since September 2022. That said, the US Dollar Index (DXY) marked four-week uptrend by the end of Friday, grinding near the highest levels in seven weeks of late, on strong United States data, especially relating to the inflation, underpinned hawkish Federal Reserve concerns.

On Friday, the Personal Consumption Expenditures (PCE) Price Index rose to 5.4% YoY versus 5.3% prior and 4.9% market forecasts. Further, the more relevant Core PCE Price Index, known as Fed’s favorite inflation gauge, rose to 4.7% YoY, compared 4.6% prior and analysts' forecast of 4.3%.

Prior to that, the second reading of the Gross Domestic Product Annualized, better known as Real GDP, eased to 2.7% for the fourth quarter (Q4) versus 2.9% first forecasts. Further, the Personal Consumption Expenditure (PCE) Price and Core PCE for the said period rose to 3.7% and 4.3% QoQ versus 3.2% and 3.9% respective first estimations.

Additionally, the Chicago Fed National Activity Index improved to 0.23 in January from -0.46 (revised), versus 0.03 analysts’ estimates. On the same line, Initial Jobless Claims also eased to 192K for the week ended on February 17 from 195K (revised) prior, compared to 200K expected.

Hawkish Federal Reserve talks also weigh on XAU/USD

While tracing upbeat US data, the Federal Reserve (Fed) officials were also hawkish and backed the US Dollar bulls, as well as weighing on the Gold price.

Cleveland Fed President Loretta Mester told CNBC on Friday that his funds rate was above the median in December and still thinks they need to be somewhat above 5%. The policymaker also added that inflation risks still tilted to the upside. On the same line, Federal Reserve Bank of Boston President Susan Collins said, “More rate hikes needed to deal with 'too high' inflation.”  Furthermore, Governor Philip Jefferson said, “Wage growth in the US is running too high to be consistent with a timely and sustainable return to the Federal Reserve's 2% inflation objective.”

Not only the Fed talks but US Treasury Secretary Janet Yellen also backed inflation fears on the sideline of the Group of 20 (G20) meetings on Friday. “Inflation is coming down if you measure it on a 12-month basis, but still core inflation, which I think will fall further, remains higher than is consistent with 2%,” said the diplomat.

It’s worth noting that the hawkish United States data and hawkish Federal Reserve (Fed) talks underpin markets bets of higher Fed rates and weigh on the Gold price. As per the latest reading of the FEDWATCH tool, market players price a year-end effective fed funds rate at 5.3%, versus 5.1% signalled by the US central bank in its December meeting.

Geopolitical risks also please Gold bears

Other than the United States data and the hawkish Fed bets, geopolitical fears surrounding Russia and China also weigh on the Gold price. Recently, China released its 12-point peace plan but failed to gain accolades due to its ties with Russia.

Following this, “There cannot be any business as usual with Russia as long as this war continues,” Germany’s Finance Minister Christian Lindner said on the sidelines of the G20 finance ministers and central bank governors' meeting on Friday.

On the same line, European Commission President Ursula von der Leyen on Friday, “sanctions are sharply eroding Russia's economic base.” EU’s von der Leyen also stated that China has already taken side for Russia, they have to view their principles in that light.

More inflation clues eyed

Given the absence of the United States employment data, more signals for the US inflation will be eyed for near-term directions of the Gold price. Among them, the US Durable Goods Orders and ISM PMIs for February will be eyed closely. As most of the top-tier US releases have backed the inflation fears, the odds of the further XAU/USD declines can’t be ruled out.

Gold price technical analysis

Gold price remains inside a three-week-old bearish channel, poking late 2022 lows of late.

That said, the quote’s downside break of a one-week-old horizontal support line, around $1,817, joins the bearish signals from the Moving Average Convergence and Divergence (MACD) indicator to strength the downside bias.

However, lower line of the stated channel joins oversold conditions of the Relative Strength Index (RSI) line, placed at 14, hints at limited downside room, which in turn highlights $1,790 as the short-term key support.

In a case where the Gold price remains bearish past $1,790, multiple supports near $1,775-80 could challenge the XAU/USD sellers.

On the flip side, the aforementioned one-week-old horizontal support-turned-resistance guards the immediate Gold price upside near $1,818.

More importantly, the XAU/USD buyers remain off the table unless the precious metal remains below $1,834-35 resistance confluence, encompassing the 50-Simple Moving Average (SMA) and top line of the stated channel.

Gold price: Four-hour chart

Trend: Limited downside expected