Gold Price Forecast: XAU/USD trims earlier gains as US data justify further Fed rate hikes

• Gold price clings to gains after upbeat US economic data, though off the highs around $1640s.
• US ISM and S&P Manufacturing PMIs, remained at expansionary territory, an excuse for further Fed tightening.
• Short term, XAU/USD bias is neutral-to-downward biased, and if it clears $1640, a fall towards $1620 is on the cards.

Gold price advances in the North American session due to a fall in US Treasury yields weakening the US Dollar, following the release of solid US data, namely factory activity. Further, a risk-on in the equities market, spurred by speculations that China is adjusting to exit its zero-tolerance Covid-19 stance, was cheered by investors. At the time of writing, XAU/USD is trading at $1647, up by 0.89%.

XAU/USD trimmed earlier losses on upbeat US data and heightened US Treasury yields

In the United States, economic data revealed by the Institute for Supply Management (ISM), alongside S&P Global, showed the economy’s resilience. Firstly the ISM Manufacturing Index came better than estimated at 50.2 vs. 50 forecasts, while a subcomponent that measures prices fell to more than a two-year low. Timothy Fiore, Chairman of the ISM Manufacturing Business Survey Committee, commented that October’s report reflects companies are getting ready for an adjustment for lower demand.

Earlier, the S&P Global PMI Manufacturing Index also dropped but remained at expansionary territory at 50.4, above estimates of 49.9, though it trailed September’s 52.

At the same time, the US Department of Labor reported that job openings in September surprisingly rose, as the JOLTS report showed an increase of close to 500K, to 10.717M from August’s 10.28M, and exceeding estimates of 10M.

Given that US data was positive, a Fed pivot narrative could lose some weight, as it justifies additional tightening, as shown by the CME Fed WatchTool, increasing from an 86 to 88 percent chance of hiking 75 bps. Regarding December’s decision, the odds are 50% chances of lifting rates by 50 or 75 bps.

Market’s reaction

The XAU/USD tumbled from around $1650 towards $1643, a $7 loss, while US Treasury bond yields jumped from their daily lows at 3.924% towards 4.075%, a headwind for the yellow metal. Therefore, some downward pressure could be expected ahead of Wednesday’s Federal Reserve monetary policy meeting.

XAU/USD Price Forecast: Technical outlook

The XAU/USD is neutral-to-downward biased in the near term, as shown by the one-hour chart, with prices sliding throughout the session below the 100 and 200-EMAs, which would be difficult hurdles to surpass, around the $1648/51 area. However, if buyers have the strength to clear the latter, a retest of the daily highs around $1656 is on the cards, ahead of the last week’s $1674.94 high. On the flip side, if XAU/USD breaks below the R1 daily pivot, it will expose the central pivot at $1636, followed by the S1 daily pivot at $1628, ahead of the S2 pivot level at $1623.