Gold Price Forecast: XAU/USD recovers overnight losses, climbs to $1,865 area

• A combination of factors assisted gold to regain positive traction on Wednesday.
• Expectations for early policy tightening by major central banks should cap gains.
• Inflation fears should act as a tailwind and attract fresh buying on any pullback.

Gold regained some positive traction on Wednesday and reversed a part of the overnight retracement slide from the highest level since June. The UK consumer inflation figures released earlier today added to worries about the continuous surge in prices. This, along with the prevalent cautious market mood, benefitted the safe-haven precious metal's appeal as a hedge against inflation. Apart from this, the intraday US dollar pullback from a 16-month peak provided a modest lift to the dollar-denominated commodity. That said, expectations for early policy tightening by major central banks could act as a headwind for the non-yielding yellow metal and cap gains, at least for the time being.

The markets have been betting on yet another rate hike by the Reserve Bank of New Zealand (RBNZ) later this month. Moreover, Tuesday's upbeat UK employment details and the UK CPI print on Wednesday reassured an imminent rate hike move by the Bank of England in December. Investors also seem convinced that the Fed would be forced to adopt a more aggressive policy response to contain stubbornly high inflation. Tuesday's upbeat US Retail Sales data reaffirmed speculations for an eventual Fed rate hike by July 2022. Moreover, the Fed funds futures indicate a high likelihood of another raise by November, which was evident from the overnight rally in the US Treasury bond yields.

Nevertheless, gold, so far, has managed to stick to its intraday gains and was last seen hovering near daily highs, around the $1,865 region, heading into the North American session. Market participants now look forward to the US economic docket, featuring the second-tier releases of Building Permits and Housing Starts. The data might do little to provide any meaningful impetus. Hence, traders will take cues from speeches by influential FOMC members. This, along with the US bond yields, will drive the USD demand and provide some impetus to the commodity. Apart from this, the broader market risk sentiment could further assist traders to grab some short-term opportunities around the XAU/USD.

Gold daily chart

Technical outlook

From a technical perspective, the previous day’s downfall validated a downward-sloping trend-line resistance extending from August 2020. The mentioned barrier, currently, around the $1,870 area, should act as a key pivotal point and help determine the near-term trajectory for gold prices. A convincing breakthrough, leading to a subsequent move beyond the $1,877 level, or the overnight swing high, would be seen as a fresh trigger for bulls. This, in turn, should pave the way for a move towards reclaiming the $1,900 mark for the time since June. The momentum could further get extended towards the next relevant hurdle near the $1,910-12 supply zone.

On the flip side, the $1,850-48 region now seems to have emerged as immediate strong support. Some follow-through selling has the potential to drag gold back towards testing the $1,834-32 strong resistance breakpoint, now turned support. The corrective fall, however, might still be seen as a buying opportunity and remain limited.