Gold Price Forecast: XAU/USD battles key hurdle to $1,834, US inflation eyed

• Gold prices retreat from two-month-old descending resistance line.
• Cautious sentiment ahead of crucial inflation, World Bank forecsts test gold buyers.
• Fed’s Powell backed rate hikes but balance sheet normalization, demand-supply issues drowned yields, USD.
• Gold Price Forecast: Gold picks up momentum on dollar’s weakness

Gold (XAU/USD) bulls take a breather around the weekly top, recently easing to $1,820, amid an early Asian session on Wednesday. The yellow metal jumped the most since mid-December the previous day after the upbeat market sentiment drowned the US Treasury yields and US dollar.

Fed Chair Jerome Powell during testimony before the Senate Banking Committee could be cited as the major factor that favored the gold prices of late. However, the market’s anxiety ahead of the US Consumer Price Index (CPI) for December joins downbeat World Bank (WB) economic forecasts and virus woes to challenge the gold buyers.

Fed’s Powell showed readiness to hike interest rates to stop inflation from being entrenched but concerns over supply-demand mismatch and balance-sheet runoff weighed poured cold water on the face of US dollar bulls. The Fed Boss said that the balance sheet runoff could happen "perhaps later in the year," while also expecting that the supply crunch will ease somewhat and the economic impact of the Omicron variant will be short-lived.

Additionally, WB’s latest economic forecasts cited coronavirus woes to cut the global GDP expectations for 2022 to 4.1% from 4.3% previous estimations. The World Bank also trimmed economic forecasts for the US and China, by 0.5% to 3.7% and by 0.3% to 5.1% in that order.

Other than Powell’s testimony, US economic calendar was mostly silent with NFIB Business Optimism Index rising past 98.4 to 98.9 for December while IBD/TIPP Economic Optimism for January eased to 44.7 versus 48.4 previous readouts.

Elsewhere, record top daily covid infections in the US also tests the market sentiment and weigh on the gold prices. It’s worth noting, however, that Merck’s update, suggesting its covid treatment pill’s ability to tame coronavirus and all variants, placates the virus fears.

Against this backdrop, the US Dollar Index (DXY) dropped around 0.35% to poke December’s low around 95.60 whereas the Wall Street benchmarks cheered the second consecutive daily fall in the US 10-year Treasury yields by the end of Tuesday’s North American session. That said, S&P 500 Futures and the US Treasury yields remain sluggish at the latest.

Looking forward, US CPI will be crucial for gold prices as market players weigh on the Fed’s pace of rate hikes and balance sheet normalization. Should the headlines inflation figures match 7.0% YoY forecasts, versus 6.8% prior, the metal should extend the latest weakness.

Read: US Inflation Preview: Dizzying heights of 7% would cement a March hike, supercharge the dollar

Technical analysis

Although a clear upside break of the 200-DMA helped gold prices to jump the most in a month the previous day, a downward sloping trend line from mid-November, around $1,825, challenges bulls.

It should be noted, however, that the MACD remains sluggish but the higher low formation and recently improving RSI hints at the metal’s further upside past the immediate resistance line.

Following that, tops marked during July and September, close to $1,834, will be in focus ahead of directing gold buyers towards the $1,850 hurdle.

Meanwhile, a downside break of the 200-DMA level surrounding 1,802 will need validation from the $1,800 threshold to convince gold sellers.

Even so, an upward sloping support line from August, near $1,787 at the latest, will be a tough nut to crack for the gold bears.

To sum up, gold prices are likely to witness further upside, at least technically, but the fundamentals are far more important during the crucial day.

Gold: Daily chart

Trend: Further upside expected