Gold Price Forecast: XAU/USD climbs back above $1,930 level amid cautious market mood

• Gold regained traction on Wednesday amid the lack of progress in the Russia-Ukraine peace talks.
• The Fed’s hawkish outlook, elevated US bond yields could act as a headwind for the precious metal.
• The emergence of some USD buying might further contribute to capping the upside for the commodity.

Gold attracted some buying during the early part of the European session on Wednesday and steadily climbed back above the $1,930 level, hitting a fresh daily high in the last hour. The market sentiment remains fragile amid the lack of progress in the Russia-Ukraine peace negotiations. In fact, Italy's Prime Minister Mario Draghi noted that Russia is not showing interest in a truce for successful peace talks. Separately, Russian Foreign Minister Sergei Lavrov said that talks with Ukraine are difficult as Kyiv is constantly changing its position. This, in turn, tempered investors' appetite for perceived riskier assets, which was evident from modest pullback in the equity markets and benefitted the safe-haven precious metal.

The uptick assisted gold to recover a part of the overnight slide to the multi-day low, though the Fed's hawkish outlook might keep a lid on any meaningful upside. It is worth recalling that the Fed last week indicated it could raise rates at all the six remaining meetings in 2022. Adding to this, Fed Chair Jerome Powell suggested on Tuesday that the US central bank could adopt a more aggressive response to combat stubbornly inflation. Moreover, San Francisco Fed President Mary Daly noted that it was time to remove policy accommodation, while St. Louis Fed President James Bullard and Cleveland’s Loretta Mester called for faster hikes. The markets were quick to price in a 50 bps rate hike at the next FOMC meeting.

The prospects for a faster policy tightening by the Fed pushed the yield on the benchmark 10-year US government bond to its highest level since 2019. This, in turn, assisted the US dollar to attract some dip-buying and should act as a headwind for the dollar-denominated commodity. Hence, the focus will remain clued to Fed Chair Jerome Powell's remarks at the BIS innovation summit later this Wednesday, which might provide some impetus to the non-yielding gold. This, along with fresh developments surrounding the Russia-Ukraine saga, would be looked upon to grab some meaningful trading opportunities around the XAU/USD.

Technical outlook

From a technical perspective, the two-way price moves witnessed over the past one week or so points to indecision amid traders or the next leg of a directional move for gold. This comes on the back of the recent sharp pullback from the vicinity of the all-time high and could be categorized as a bearish consolidation phase. That said, it will be prudent to wait for some follow-through selling before positioning for any further depreciating move. In the meantime, the $1,912-$1,910 area seems to protect the immediate downside ahead of the monthly low, around the $1,895 region. Sustained weakness below will reaffirm the negative bias and drag gold prices towards the next relevant support near the $1,870-$1,868 zone.

On the flip side, immediate resistance is pegged near the $1,936-$1,938 area ahead of the $1,945-$1,950 region. The latter coincides with the top boundary of the aforementioned trading range, which if cleared decisively should pave the way for additional gains. The momentum could then push gold towards the $1,975-$1,976 intermediate hurdle, above which bulls might aim back to reclaim the key $2,000 psychological mark.

Gold 1-hour chart

Key levels to watch