Gold Price Analysis: XAU/USD bears in charge as US dollar firms in risk-off conditions

• Gold is under pressure near Friday's close while the US dollar corrects.
• The focus will be on Chinese data to start the week following US economic disappointments for December. 

The price of gold, XAU/USD, is sat near the close of Friday on Monday's open in what is expected to be a quiet start to the week with only Chinese data eyed later today. The markets reacted defensively to disappointing US economic data for December which could weigh on Asian bourses as well, further supporting the greenback, especially should China disappoint in today's numbers. 

US Retail Sales dropped 1.9% MoM, with control group sales down 3.1% MoM. ''The data suggest that the highest inflation in 40 years is impacting consumer behaviour, and this may well extend into the first quarter when the end of the child tax credits will also weigh,'' analysts at ANZ Bank explained.

Manufacturing also disappointed, dropping 0.3% MoM with Industrial Production slipping 0.1% MoM. ''The weakness in manufacturing was driven by a 1.3% drop in auto vehicles and parts,'' the analysts at ANZ Bank noted. 

Meanwhile, January preliminary University of Michigan Consumer Sentiment dropped to 68.8 vs 70.6. Of note, current conditions are now at their lowest level in a decade and future conditions are down as well. Inflation expectations edged higher again and this aligns with sentiment surrounding the Federal Reserve. 

Somewhat counterintuitively, this is supporting the greenback and weighs on the price of gold. Overall, despite weaker data, the market expectations are suggesting a March Fed funds hike is imminent. Specifically for gold, analysts at TD Securities explained that Shanghai traders are growing their gold length amid a rise in infections across China. ''Alongside an increase in CTA trend follower positioning, this flow appears to have been sufficiently supportive to lift gold prices against the prevailing narrative of a hawkish Fed'

The analysts note that ''levered short positioning, while not broad, remained bloated — which also leaves traders vulnerable to a positioning squeeze. That being said, the ongoing CTA buying program could soon be running out of steam, leaving fewer avenues for speculative length to grow.''

Additionally, the analysts explained, ''in China, aggregate net length in gold has increased towards its average value over the past twelve months, which also reduces the impetus for further purchases. Considering that markets will ultimately remain intensely focused on the Fed's exit, fewer sources of upside flow in the coming weeks could leave gold prices vulnerable to consolidation.''

Gold 4-hour chart

For the open, a correction could be on the cards in what would be a retest of the $1,821 structure. No matter which way, the outlook is bearish across the charts and there are prospects of a move into the depths of the $1,800s to meet the $1,801 prior low as per the illustration on the 4-hour chart above. However, a break above $1,829 and a close in the $1,830's would negate the bearish outlook.