Gold Price Forecast: XAU/USD is at the mercy of central bank events and US jobs data

• Gold is solid on the back of US dollar weakness.
• US jobs data has underwhelmed the greenback, sinking as Fed officials dial down aggressive rate hike expectations.
• XAU/USD poised for further losses on Fed's hawkish stance

At $1,808.20, gold is flat on the session so far and little changed over the course of the past few sessions holding above the key $1,800 per ounce level. However, there has been a focus on the US dollar and US Treasury yields that have both retreated after a disappointment in US jobs data.

Spot gold (XAU/USD) is solid on the basis that the greenback extended its losses to a more than a one-week low on Wednesday. In what might be considered as a bearish prelude to this Friday's Nonfarm Payrolls, a dip in the US private sector employment for January due to the increase in COVID-19 infections has weighed on the US dollar. 

US jobs data under scrutiny

In fact, the ADP report fell for the first time in a year in January as soaring COVID-19 infections disrupted business operations. The data arrived with a decline of 301,000 jobs last month. this was a far cry from the 207,000 in private payrolls expected. Additionally, December was revised lower to show only 776,000 jobs added instead of the initially reported 807,000. 

The data poured more fuel onto the US dollar bear's fire that was lit up by Federal Reserve officials this week backtracking on some of the central bank's hawkish comments, pushing the dollar lower. The nail in the coffin was hammered in when renowned hawk St. Louis Fed President James Bullard also pushed back against a larger rate hike in March.

In late New York afternoon trading on Wednesday, US rate futures priced in about 4.7 hikes this year, or 118.6 basis points of policy tightening, down from the five rate increases seen over the last two days, Reuters reported. ''Futures also showed the probability of a 50-basis-point hike in March has settled at 12.5%, from as high as 32% late last week.''

Meanwhile, analysts at TD Securities explained, ''the weak jobs print that we're expecting is unlikely to sway the Fed from its decisively hawkish tone. Instead, we expect the central bank to look past recent weakness as being related to Omicron's fallout.''

''In this context,'' they said, ''the data doesn't help to inform global macro participants on whether we are facing a new regime at the Fed, or whether they are jawboning to tame inflation expectations. We expect that the precious metals complex will struggle to attract capital in this context.''

ECB and BoE are now key

For the day ahead, investors will now focus on the European Central Bank and Bank of England meetings later today for cues on the pace of monetary policy tightening amidst soaring inflation. if there are hawkish outcomes, then the US dollar could come under further pressure. However, this is a double edge sword for gold considering a chorus of hawkish central banks would raise the opportunity cost of holding non-yielding bullion.

Meanwhile, on the geopolitical front, the US will send extra troops to shield Eastern Europe from a potential spillover from the massing of Russian troops near Ukraine, US officials said on Wednesday, Reuters reporting on the matter. Gold is a safe haven asset and could benefit from heightened tension in the region. 

The end of supportive Chinese demand?

Lastly, the analysts at TD Securities noted the influence of Chinese participation in the market. ''Given that Chinese demand overwhelmingly supported gold in recent weeks, a seasonal lull following Lunar New Year could mark the end of supportive Chinese demand, suggesting prices are vulnerable to a deeper consolidation in support of our tactical short gold position.'' To this end, the analysts said, ''CTA trend followers are set to resume liquidations unless prices breach $1820/oz on the session.''

Gold technical analysis

As stated at the start of the week's analysis in the Chart of the Week, ''should this playout, and if the bears commit ... additional supply could be the straw that breaks the camel's back for a sizeable continuation to crack the trendline support as follows:

On the other hand, if the US dollar continues on its southerly trajectory, then the neckline of the M would be the last defence for a restest of the wedge resistance the $1,850's once again: