Gold Price Forecast: XAU/USD ticks higher amid a softer risk tone, lacks bullish conviction

• Gold price struggles to gain traction and is influenced by a combination of diverging forces.
• Hawkish Fed expectations, elevated US bond yields and a bullish USD weighs on the metal.
• Geopolitical risk, along with China’s economic woes, lends some support to the commodity.

Gold price (XAU/USD) is seen oscillating in a narrow trading band during the Asian session on Tuesday and consolidating its losses registered over the past two days, to over a one-week low around the $2,015 area touched the previous day. The mixed fundamental backdrop, however, warrants some caution for bearish traders and before positioning for an extension of last week's retracement slide from the $2,065 region, or a one-month peak.

The US Dollar (USD) stands tall near its highest level in almost three months and remains well supported by expectations that the Federal Reserve (Fed) will keep interest rates higher for longer, bolstered by Friday's upbeat US jobs data. Adding to this, the Institute for Supply Management (ISM) reported on Monday that its Non-Manufacturing PMI increased to 53.4 in January from the 50.5 previous. This, along with hawkish comments by influential FOMC members, further forced investors to scale back their expectations for a more aggressive policy easing by the Fed in 2024.

In an interview with the CBS News show "60 Minutes" that aired on Sunday, Fed Chair Jerome Powell said that the central bank could be patient in deciding when to cut interest rates. On Monday, Minneapolis Fed President Neel Kashkari said that officials have time to gauge incoming data before easing, while Chicago Fed President Austan Goolsbee reiterated that he would like to see more of favourable inflation data. This remains supportive of elevated US Treasury bond yields, which continue to underpin the buck and should act as a headwind for the non-yielding Gold price.

Meanwhile, the view that the Fed is not ready to call victory over inflation just yet, along with the risk of a further escalation of geopolitical tensions in the Middle East and China's economic woes, tempers investors' appetite for riskier assets. The anti-risk flow led to the overnight corrective decline in the US equity markets and turns out to be the only factor lending support to the safe-haven Gold price. In the absence of any relevant market-moving economic releases from the US, this makes it prudent to wait for strong follow-through selling before confirming a near-term bearish breakdown.

Technical levels to watch