Forex world

December 14, 2022

XAU/USD holds above $1,800

- Gold price retreats further from over a five-month high, though the downside seems cushioned.

- Expectations for a less hawkish Federal Reserve weigh on the US Dollar and should lend support.

- Traders might also refrain from placing aggressive bets ahead of the key central bank event risk.

Gold price edges lower on Wednesday and extends the previous day's late pullback from the $1,824-$1,825 area, or its highest level since late June. The XAU/USD remains on the defensive heading into the North American session, albeit holds above the $1,800 mark as traders await the latest monetary policy update from the Federal Reserve.

Bets for smaller rate hikes by Federal Reserve to lend support to Gold price

The softer-than-expected release of the consumer inflation figures from the United States reaffirmed expectations that the Federal Reserve will slow the pace of its policy tightening. In fact, the US central bank is expected to deliver a relatively smaller 50 bps at the end of a two-day policy meeting later this Wednesday. Furthermore, early indicators suggest that the markets are pricing in a 25 bps rate hike at the next Federal Open Market Committee (FOMC) meeting in February 2023. This, in turn, should offer some support to the non-yielding Gold price.

Softer US Dollar should contribute to limiting losses for Gold price

The market focus, meanwhile, will remain on the accompanying policy statement and the so-called dot plot. Investors will look for fresh cues about the future rate-hike path, which will help determine the next leg of a directional move for Gold price. In the meantime, the US Dollar languishes near a multi-month low touched on Tuesday amid the prospects for a less hawkish Federal Reserve keep. This could further contribute to limiting losses for the Dollar-denominated commodity and warrants some caution before positioning for any meaningful corrective decline.

Investors turn cautious heading into the key central bank event risk

Heading into the key central bank event risk, nervousness about policymakers' view on signs of cooling inflationary pressure in the United States keeps a lid on the recent optimism. This is evident from the cautious mood around the equity markets, which should offer additional support to the safe-haven Gold price. This, in turn, suggests that any subsequent downtick might be seen as a buying opportunity and is more likely to remain limited, at least for the time being.

Gold price technical outlook

From a technical perspective, the overnight breakout through the very important 200-day Simple Moving Average (SMA) and acceptance above the $1,800 mark add credence to the positive outlook. The said handle should now protect the immediate downside for the Gold price, which is closely followed by support near the $1,795-$1,794 area (200 DMA). Some follow-through selling could drag the XAU/USD to the $1,778-$1,777 region en route to the $1,766-$1,765 horizontal support. The latter should act as a strong base, which if broken decisively might negate the near-term bullish bias.

On the flip side, momentum back above the $1,810-$1,812 static barrier might confront some resistance near the multi-month top, around the $1,824-$1,825 region. A sustained strength beyond will reaffirm the constructive set-up and lift the Gold price to the next relevant hurdle near the $1,848-$1,850 supply zone. The upward trajectory could get extended further towards the $1,875 level en route to the June monthly swing high, around the $1,880 region.

Key levels to watch

XAU/USD

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