Gold Price Forecast: XAU/USD flirts with 200/100-DMAs confluence, just below $1,800

• Omicron fears, weaker USD assisted gold to gain some positive traction on Tuesday.
• The Fed's hawkish outlook, rising US bond yields capped gains amid the risk-on mood.
• Relatively thin liquidity warrants some caution before placing aggressive directional bets.

Gold regained positive traction on Tuesday and reversed a major part of the previous day's losses, stalling its recent pullback from the $1,814-15 resistance zone or monthly high touched last week. The XAU/USD maintained its bid tone through the mid-European session, with bulls awaiting a sustained move back above the 200/100-day SMAs confluence hurdle near the $1,800 mark.

The precious metal drew some haven flows amid concerns about surging Omicron COVID-19 variant cases and a fatal blow to US President Joe Biden's massive $1.75 trillion spending bill. In fact, US Senator Joe Manchin, a conservative Democrat who is key to Biden’s hopes of passing the investment bill, said on Sunday that he would not support the package. The developments dashed hopes of a definitive vote before the end of the year, which, in turn, kept the US dollar bulls on the defensive and further benefitted the dollar-denominated gold.

Meanwhile, the global risk sentiment stabilized after Moderna said on Monday that a booster shot of its COVID-19 vaccine could protect against the new strain in laboratory testing. This led to a strong recovery in the global equity markets and held back traders from placing aggressive bullish bets around the safe-haven XAU/USD. Apart from this, the Fed's hawkish outlook and a fresh leg up in the US Treasury bond yields kept a lid on any further gains for the non-yielding gold, warranting some caution for aggressive bullish traders.

It is worth recalling that the Fed announced last Wednesday that it would double the pace of tapering to $30 billion per month. Moreover, the so-called dot plot indicated that officials expect to raise the fed funds rate at least three times next year. Investors might also be reluctant amid relatively thin liquidity conditions heading into the year-end holiday season. This makes it prudent to wait for a strong follow-through buying before positioning for any further gains amid absent relevant market moving economic releases from the US.

Technical outlook

From a technical perspective, any subsequent move beyond the $1,800 confluence might continue to face stiff resistance near the $1,814 region. Some follow-through buying might trigger a short-covering move and push gold prices back towards the $1,832-34 heavy supply zone. On the flip side, the $1,779-78 area now seems to protect the immediate downside. This is followed by support near the $1,772 horizontal level, below which the XAU/USD could slide back to the monthly swing low, around the $1,753 region.

Key levels to watch