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  • The price of gold remains in a light price level, largely out of an uptrend for the sixth week.
  • A cautious market sentiment ahead of next week’s Federal Reserve (Fed) meeting is probing gold buyers.
  • The US PMI for January failed to pull back USD buyers, allowing XAU/USD to hold firmer.
  • US GDP may offer gold traders the last key signal ahead of the Fed.

The price of gold (XAU/USD) is seeing near $1,938 as bulls take a breather in a bearish chart early Wednesday morning. With that, the bright metal depicts mixed market sentiment amid deteriorating data from the United States, as well as a cautious mood ahead of next week’s Federal Reserve (Fed) meeting. However, USD weakness and optimism surrounding Europe as well as China seem to favor XAU/USD bulls.

The lack of clarity in the market is of interest to gold buyers

While gold buyers remain at the helm for the sixth straight week, mixed signals from global markets and a period of Federal Reserve (Fed) silence ahead of next week’s Federal Open Market Committee (FOMC) meeting appear to be limiting XAU/USD’s moves. Gold traders could also be challenged by the week-long holiday in China due to Lunar New Year (LNY) celebrations. It’s worth noting that European Central Bank (ECB) officials are also sneaking into policy disruptions starting today and adding headwinds to gold price movements. The yield on the 10-year US Treasury fell five basis points (bps) to 3.455% in reporting sentiment, but Wall Street closed mixed.

USD decline favors XAU/USD bulls

Despite mixed sentiment, USD weakness favors gold buyers due to the inverse correlation between XAU/USD and the dollar. It is worth noting that the US Dollar Index (DXY) remains uncertain near 101.90 after printing a downtrend for the past two weeks. With that, the dollar gauge against six major currencies takes cues from the market’s bearish bias for next week’s Fed meeting, as well as highlighting the worst data from the US.

Thus, preliminary US S&P Global Manufacturing PMI for January rose to 46.8 from 46.2 forecast and 46.1, while Services PMI followed the month’s 46.6 reading to 44.5. against forecast and 44.7. That said, the S&P Global Composite PMI for January rose to 46.6 from 45.0 previously and the consensus of 44.7, marking the seventh consecutive reading below 50.

Following the US data, the US Dollar Index (DXY) managed to rise briefly before closing in the red. The reason may be related to the comment of S&P Global Chief Business Economist Chris Williamson, who said: “The US economy started 2023 on a disappointingly soft note, with business activity contracting sharply again in January.”

Markets are widely expecting a 0.25% Fed rate hike and a policy pivot next week, given the lackluster US data. As a result, gold buyers find themselves pricing in the anticipated outcome.

Optimism about Europe and China is also strengthening the price of gold

Even if China is out of the market for the Lunar New Year celebrations, the positive vibe emanating from the reopening of the world’s largest commodities user is giving gold buyers hope. Expectations of strong holiday demand may also be driving XAU/USD’s rally. It’s worth noting that recent challenges to US-China relations over alleged Chinese links to Russia’s war appear to be testing optimism.

Elsewhere, recent activity data from Europe appears to be helping traders remain optimistic about the old continent. The Eurozone’s S&P Global Manufacturing PMI beat the market’s forecast of 48.5 and the previous reading of 47.8 with January’s reading of 48.8. Furthermore, the Services PMI also impressed the Euro bulls at 50.7, up from 50.2 from 49.8 previously. With that, the bloc’s Composite PMI rose to 50.2, up from the previous reading of 49.3 and the market forecast of 49.8. After the data was released, S&P Global Chief Business Economist Chris Williamson said: “The stabilization of the Eurozone economy at the beginning of the year indicates that the region can avoid recession.”

US Gross Domestic Product is the key

While US durable goods orders and secondary employment data may also entertain Gold buyers, much of the focus will be on the first readings of US Gross Domestic Product (GDP) for the fourth quarter (Q4). The reason seems logical in connection with the meeting of the Federal Reserve System (Fed) to be held next week, as well as the talks about the US recession. Forecasts show the world’s largest economy slowing to 2.8% annual growth.

Read also: US Gross Domestic Product Preview. Three reasons to expect a stronger US dollar

Technical analysis of gold price

Despite the soft performance of recent trading, the price of Gold remains in a bullish wedge bearish chart from a week ago. The bearish bias is also supported by the Relative Strength Index (RSI) at 14, as well as mixed signals from the Moving Average Convergence and Divergence (MACD) indicator.

As a result, XAU/USD is likely to rise, if not stay between the $1,944 and $1,916 levels. However, the oscillators, particularly the RSI and MACD, are teasing the bears and thus the decline to $1916 may receive more reaction than other conditions.

In that case, the one-month uptrend line and the 100-Simple Moving Average (SMA) near $1,896 and $1,890, respectively, will be crucial before expecting the gold price to decline to the theoretical $1,870 target.

On the downside, a successful break of $1,944 would reverse the bearish chart pattern and could push XAU/USD towards the March 2022 high around $1,966.

If gold buyers keep the limits of $1966, then the possibility of witnessing $2000 in the chart cannot be excluded.

Gold Price – Four Hour Chart

Trend. Further weakness is expected

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