Gold Price Forecast: XAU/USD climbs back above $1,830 level amid retreating bond yields

• Gold reversed an intraday dip and stalled the overnight pullback from over a two-week high.
• The risk-off mood was seen as a key factor that acted as a tailwind for the safe-haven metal.
• Retreating US bond yields prompted some USD selling and further benefitted the commodity.
• Rising bets for a 50 bps Fed rate hike in March should hold back bulls from placing fresh bets.

Gold attracted some dip-buying near the $1,821 region on Friday and for now, seems to have stalled the previous day's retracement slide from over a two-week high. Against the backdrop of geopolitical risks, a generally weaker tone around the equity markets acted as a tailwind for the safe-haven XAU/USD. Apart from this, concerns about the continuous rise in the US consumer prices further benefitted the precious metal's status as a hedge against inflation. In fact, data released on Thursday showed that the headline US CPI accelerated to a 40-year high in January.

The red-hot US inflation reinforced expectations that the Fed would adopt a more aggressive policy response to combat high inflation and bets for a 50 bps rate hike in March. Adding to this, St. Louis Fed President James Bullard called for 100 bps rate hikes over the next three FOMC policy meetings. This, in turn, pushed the yield on the benchmark 10-year US government bond beyond the 2% threshold for the first time since mid-2019. Adding to this, the 2-year note, which is highly sensitive to rate hike expectations, climbed to its highest level since January 2020.

The US bond yields, however, retreated a bit from the aforementioned highs, which prompted some intraday US dollar selling. This, in turn, was seen as a key factor that extended some support to the dollar-denominated commodity, though the uptick lacked bullish conviction. The prospects for a faster policy tightening continued acting as a headwind for the non-yielding gold and warrants some caution for aggressive bullish traders. Hence, it will be prudent to wait for a strong follow-through buying before positioning for the resumption of a two-week-old bullish trend.

Nevertheless, the metal has now moved into the positive territory and was last seen hovering near the daily high, just above the $1,830 level. Market participants now look forward to the US economic docket, featuring the release of the Prelim University of Michigan US Consumer Sentiment Index. This, along with the US bond yields, will influence the USD price dynamics and provide some impetus to gold prices. Apart from this traders will take cues from the broader market risk sentiment for some short-term opportunities around the XAU/USD on the last day of the week.

Technical outlook

From a technical perspective, any subsequent move up is likely to confront some resistance near the $1,832-$1,833 region ahead of the overnight swing high, around the $1,842 area. Some follow-through buying has the potential to push gold prices back towards the January swing high, around the $1,853 area. The latter nears a downward-sloping trend-line resistance, extending from June 2021. A convincing breakthrough will be seen as a fresh trigger for bullish traders and set the stage for a further near-term appreciating move for the metal.

On the flip side, weakness back below the $1,825 level might continue to attract some buying and remain limited near the $1,818 horizontal support. This is followed by the very important 200-day SMA, currently around the $1,807 region, which if broken decisively will negate any positive bias and shift the bias in favour of bearish trades. Gold would then turn vulnerable to weaken further below the $1,800 mark and test the next relevant support near the $1,790 region before eventually dropping to 2020 low, around the $1,780 area.

Gold daily chart

Levels to watch