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XAU/USD retreats from multi-month top amid modest USD recovery, ahead of US GDP

26 January 2023

Gold price pulls away from a fresh multi-month top amid a modest US Dollar strength. Bets for smaller rate hikes by Federal Reserve, recession fears should help limit losses. Traders now look to the Advance GDP report from the United States for some impetus. Gold price retreats from the vicinity of the $1,950 level or the highest level since April 2022 touched this Thursday and extends its descent through the first half of the European session. The XAU/USD drops to a fresh daily low, around the $1,935 area in the last hour, and for now, seems to have snapped a three-day winning streak.

Modest US dollar strength weighs on gold price

The US Dollar (USD) gains some positive traction and moves away from an eight-month low ahead of the preliminary fourth-quarter Gross Domestic Product (GDP) report from the United States (US). This turns out to be a key factor prompting traders to lighten their bullish bets around the US Dollar-denominated Gold price. The intraday USD uptick, however, is more likely to remain limited amid the prospects for a less aggressive policy tightening by the Federal Reserve (Fed).

Bets for smaller rate hikes by Federal Reserve to lend support

In fact, the markets seem convinced that the US central bank will soften its hawkish stance amid signs of easing inflationary pressures. Furthermore, the CME's FedWatch Tool points to over a 90% probability for a smaller 25 bps rate hike at the next Federal Open Market Committee (FOMC) meeting that concludes on February 1. This keeps a lid on the US Treasury bond yields, which, in turn, might hold back the USD bulls from placing fresh bets and lend support to Gold price.

Recession fears should limit losses for Gold price

Apart from this, the prevalent cautious mood might also contribute to limiting the downside for the safe-haven XAU/USD, for the time being. Concerns about a deeper global economic downturn continue to weigh on investors' sentiment, which is evident from a generally softer tone around the equity markets. Traders also seem reluctant and might prefer to wait on the sidelines ahead of Thursday's key US macro data - Q4 GDP print, Durable Goods Orders and New Home Sales data.

Focus remains on key macro data from United States

Market participants this week will also confront the release of the Personal Consumption Expenditures (PCE) Price Index - the Fed's preferred inflation gauge on Friday. The incoming data should play a key role in influencing the US central bank's interest rate strategy, which, in turn, will drive the USD demand and provide some meaningful impetus to Gold price. The focus, however, will remain glued to the outcome of a two-day FOMC meeting, scheduled to be announced next Wednesday.

Gold price technical outlook

From a technical perspective, the bias remains tilted in favour of bullish traders and any subsequent slide is more likely to find decent support near the $1,920 resistance breakpoint. This is followed by the $1,911-$1,910 support zone ahead of the $1,900 round figure. The latter should act as a pivotal point, which if broken decisively might shift the near-term bias in favour of bearish traders and pave the way for a deeper corrective pullback.

On the flip side, the multi-month peak, around the $1,949 area touched earlier this Thursday, now becomes an immediate hurdle, above which Gold price could climb to the $1,969-$1,970 region. The momentum could get extended further, allowing bulls to surpass an intermediate resistance near the $1,980 zone and reclaim the $2,000 psychological mark for the first time since March 2022.


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