Gold Price Forecast: XAU/USD edges lower to $1,920 area, downside remains cushioned

• Gold witnessed fresh selling on Thursday, though the downtick lacked bearish conviction.
• Modest USD strength, hawkish Fed expectations exerted downward pressure on the metal.
• Fading hopes for diplomacy in Ukraine extended some support to the safe-haven XAU/USD.

Gold came under some renewed selling pressure on Thursday and fell to the $1,920 region heading into the European session, reversing the overnight modest gains. The US dollar drew some support from expectations for a more aggressive policy tightening by the Fed and was seen as a key factor that acted as a headwind for the dollar-denominated commodity. In fact, the markets have been pricing in the possibility of a 50 bps Fed rate hike move at the next two meetings, which further undermined the non-yielding yellow metal.

The downside, however, remains cushioned amid fading hopes for a diplomatic solution to end the war in Ukraine. In fact, a Kremlin spokesperson said that they have not noticed anything that looks like a breakthrough in negotiations. Moreover, an adviser to Ukraine’s President noted that Russia is transferring forces from Kyiv to encircle troops in the east. Apart from this, the growing prospect of new Western sanctions against Russia tempered investors' appetite for perceived riskier assets and should extend support to the safe-haven gold.

The mixed fundamental backdrop warrants caution before positioning for the resumption of the recent sharp pullback from the vicinity of the all-time high, around the $2,070 region touched earlier this month. Market participants now look forward to the US economic docket, highlighting the release of the Core PCE Price Index - the Fed's preferred inflation gauge. The focus, however, will remain on the closely-watched US monthly jobs report (NP), which will influence expectations about the Fed's policy outlook. Apart from this, developments surrounding the Russia-Ukraine saga should assist investors to determine the next leg of a directional move for gold prices.

Technical outlook

From a technical perspective, the commodity's inability to capitalize on this week's recovery from over a two-month low favours bearish traders. That said, repeated failures to find acceptance below the $1,900 mark make it prudent to wait for some follow-through selling before confirming the negative outlook. In the meantime, the $1,914 area could act as immediate support ahead of the $1,895-$1,890 region. A convincing break through the latter would set the stage for a slide towards the next relevant support near the $1,872-$1.870 region.

On the flip side, the overnight high, around the $1.938 zone, closely followed by the $1,944-$1,945 region should cap the immediate upside. Sustained strength beyond could trigger a short-covering move and push gold prices to the $1,956-$1.957 area. The momentum could further get extended towards the $1,985-$1,988 region, above which bulls could aim to reclaim the key $2,000 psychological mark.

Gold daily chart

Key levels to watch