Gold Price Forecast: XAU/USD climbs further beyond $1,900, highest since May 2022

• Gold price continues scaling higher on Friday and touches a fresh multi-month peak.
• Bets for smaller Fed rate hikes continue to weigh on the USD and remain supportive.
• A sustained strength above $1,900 supports prospects for a further appreciating move.

Gold price catches fresh bids during the early part of the European session on Friday and appreciates further beyond the $1,900 round-figure mark. The XAU/USD now trades with gains of over 0.60% for the day and is currently placed just below the $1,910 level, or its highest level since May 2022.

Weaker US Dollar continues to benefit Gold price

The US Dollar (USD) remains depressed near a seven-month low amid growing acceptance that the Federal Reserve (Fed) will soften its hawkish stance amid signs of easing price pressures. A weaker Greenback turns out to be a key factor benefitting the US Dollar-denominated Gold price. In fact, inflation in the United States (US), as measured by the Consumer Price Index (CPI), dipped 0.1% in December, marking the first decline since May 2020. Adding to this, the yearly rate decelerated from 7.1% rate in November to 6.5% or the lowest level since October 2021. Furthermore, core inflation, which excludes food and energy prices, rose 0.3% and slowed to the 5.7% YoY rate from 6.0% in November.

Bets for smaller rate hikes by Federal Reserve further lend support

The markets started pricing in a smaller 25 bps Fed rate hike in February. The bets were further backed-up by Philadelphia Fed President Patrick Harker's comments that hikes of 25 bps will be appropriate going forward. Separately, Richmond Fed President Thomas Barkin suggested that it made sense to steer more deliberately as the central bank works to bring inflation down. This overshadows more hawkish remarks by St. Louis Fed president James Bullard, reaffirming that rates would be north of 5% by the end of 2023. Nevertheless, the prospects for less aggressive policy tightening by the Fed keep the US Treasury bond yields depressed near a multi-week low and further lend support to the non-yielding Gold price.

Technical buying contributes to the ongoing positive move

Apart from this, the prevalent cautious market mood - amid worries about a deeper global economic downturn - underpins the safe-haven Gold price. This, along with some technical buying above the $1,900 mark, contributes to the latest leg-up witnessed over the past hour or so. The medium-term trend is firmly up and the fundamental and technical setup supports prospects for additional near-term gains for the XAU/USD. Market participants now look forward to the US economic docket, featuring the Preliminary Michigan Consumer Sentiment Index later during the early North American session. Traders will further take cues from the US bond yields and the broader market risk sentiment to grab short-term opportunities.

Gold price technical outlook

From a technical perspective, some follow-through buying beyond the $1,910 area will validate a fresh bullish breakout and lift the Gold price to the $1,920 horizontal zone. The momentum could get extended further towards the next relevant hurdle near the $1,935-$1,936 region.

On the flip side, price has reached the top of its rising channel on the 4-hour chart drawn for the rally over the last two weeks and there is now a risk of a short-term pull-back materialising, although the dominant uptrend is likely to remain intact. Any meaningful pullback below the $1,900 mark could attract fresh buyers near the $1,885-$1,880 zone at the base of the channel. This, in turn, should help limit the downside.

A convincing break below the base of the channel supported by a daily close below around the $1,870 mark might signal a breakout lower and shift the near-term bias in favour of bearish traders, prompting aggressive selling around the XAU/USD.

Key levels to watch