Gold Price Forecast: XAU/USD extends post-FOMC recovery from two-month low amid weaker USD

• Gold gained traction for the second successive day and moved further away from a two-month low.
• The USD extended the post-FOMC retracement slide and extended some support to the commodity.
• The risk-on mood could hold bulls from placing aggressive bets and keep a lid on any further gains.

Gold built on the previous day's post-FOMC recovery move from the $1,753 area, or a two-month low and gained some follow-through traction on Thursday. This marked the second successive day of a positive move and pushed spot prices to the $1,786 region during the early European session.

As was widely expected, the US central bank kept its interest rate unchanged at 0.25% and said that it would double the pace of tapering to $30 billion per month. The so-called dot plot showed that officials expect to raise the fed funds rate at least three times next year. The markets, however, had already priced in the prospects for a faster policy tightening by the Fed. This, in turn, led to a sharp US dollar pullback from the vicinity of a 16-month high, which extended through the early part of the trading on Thursday and benefitted dollar-denominated commodities, including gold.

Apart from this, concerns about the economic fallout from the rapid spread of the new Omicron variant, along with the imposition of fresh restrictions in Europe and Asia further underpinned the safe-haven XAU/USD. That said, a generally positive tone around the equity markets could hold back traders from placing aggressive bullish bets and keep a lid on any further gains for gold. Market participants now look forward to the US economic docket, featuring the release of the Initial Weekly Jobless Claims, Philly Fed Manufacturing Index, Industrial Production and flash PMIs. This, along with some volatility infused by the BoE/ECB policy decision, should provide some impetus to the commodity.

Technical outlook

From a technical perspective, any subsequent move up is likely to confront stiff resistance near a technically significant 200-day SMA. The mentioned barrier, around the $1,795 region, coincides with 100-day SMA. A sustained strength beyond the confluence hurdle should pave the way for a further near-term appreciating move. Gold could then accelerate the momentum towards an intermediate resistance near the $1,812-15 region before eventually climbing to test the $1,832-34 supply zone.

On the flip side, any meaningful pullback now seems to find decent support near the $1,770 level. Some follow-through selling has the potential to drag the XAU/USD back towards the overnight swing low, around the $1,753 region, which if broken will be seen as a fresh trigger for bearish trades. The next relevant support is pegged near the $1,726-25 area, below which gold prices could test the $1,700 round-figure mark.

Gold daily chart

Key levels to watch