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XAU/USD remains on the defensive around $1,925 ahead of US PCE


27 January 2023

Gold price remains on the defensive for the second straight day amid modest US Dollar strength. Thursday’s upbeat US macro data fuels hawkish Fed expectations and underpins the greenback. A positive risk tone furtehr exerts pressure on safe-haven XAU/USD ahead of the US PCE data. The market focus will remain glued to the highly-anticipated FOMC policy meeting next week.

Gold price trades with a mild negative bias for the second successive day on Friday and hovers around the $1,925 region during the early European session. The intraday downtick, however, lacks follow-through, warranting some caution before positioning for a deeper corrective pullback from a nine-month peak touched the previous day.

Modest dollar strength weighs on gold price

The US Dollar (USD) draws support from Thursday's mostly upbeat macro data from the United States (US) and turns out to be a key factor weighing on Gold price. In fact, the US Commerce Department reported that the world's largest economy expanded at a 2.9% annualised pace during the fourth quarter against consensus estimates for a reading of 2.6%. This points to an economy that continues to show resilience despite the rapid rise in borrowing costs and backs the case for the Federal Reserve (Fed) to maintain its hawkish stance for longer. This, in turn, pushes the US Treasury bond yields higher and underpins the greenback.

Positive risk tone further undermines safe-haven XAU/USD

The robust economic indicators from the US ease recession fears and boost investors' confidence, which is evident from a generally positive tone around the equity markets. This is seen as another factor exerting some pressure on the safe-haven Gold price. The downside for the XAU/USD, meanwhile, seems cushioned as traders seem reluctant ahead of Friday's release of the Fed's preferred inflation gauge - the US Core Personal Consumption Expenditures (PCE) Price Index.

This will influence the Fed's rate-hike path, which, in turn, will drive the USD demand and provide a fresh directional impetus to the non-yielding yellow metal.

Focus remains on Federal Reserve decision next week

The focus, however, remains on the outcome of a two-day Federal Open Market Committee (FOMC) meeting, scheduled to be announced next Wednesday. The markets still seem convinced that the US central bank will soften its stance and have been pricing in a greater chance of a 25 bps rate hike on February 1. Heading into the key central bank event risk, traders might refrain from placing aggressive bets. This further makes it prudent to wait for strong follow-through selling before confirming that Gold price has topped out in the near term.

Gold price technical outlook

From a technical perspective, any further slide below the $1,920 resistance breakpoint, now turned support, is likely to attract fresh buyers around the $1,911-$1,910 support zone. This, in turn, should help limit the downside for the XAU/USD near the $1,900 round-figure mark. 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 meaningful corrective decline.

On the flip side, the multi-month peak, around the $1,949 area touched on Thursday, now seems to have emerged as an immediate strong barrier. Some follow-through buying has the potential to lift the Gold price to the $1,969-$1,970 region. The momentum could get extended further, which should allow the XAU/USD bulls to surpass an intermediate hurdle near the $1,980 zone and reclaim the $2,000 psychological mark for the first time since March 2022.

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