Gold Price Forecast: XAU/USD bullish potential remains intact, focus shifts to Fed

• Gold price gathers pace for the next push higher early Tuesday.  
• US Dollar extends recovery, as China woes dent sentiment.
• Sluggish US Treasury bond yields support Gold price amid bullish technicals.

Gold price is catching a breather below $2000 early Tuesday, having corrected sharply from near five-month highs on Monday. The market mood is turning sour after China’s official business PMIs revived growth concerns while investors stay cautious ahead of key US tech earnings reports and the all-important US Federal Reserve (Fed) policy decision on Wednesday.

BoJ stands pat, focus shifts to the Federal Reserve

Asian markets ignored the positive lead from Wall Street overnight and traded mostly in the red, as China’s official Manufacturing PMI unexpectedly returned to contraction in October, arriving at 49.5 when compared to the 50.2 expansion in September, the latest data published by the country’s National Bureau of Statistics (NBS) showed on Tuesday. The NBS Services PMI declined to 50.6 in October versus the expected 51.8 figure and 51.7 previous.

Further, lingering geopolitical tensions between Hamas-Israel and nervousness ahead of key Fed interest rate decision are keeping markets on the edge, as investors flock to safety in the US Dollar. Therefore, the US Dollar is building on its overnight recovery, despite a subdued performance in the US Treasury bond yields, keeping the downside pressure intact on the Gold price.

Meanwhile, markets failed to find any support even though the Bank of Japan (BoJ) made no changes to its monetary policy settings at its October meeting. The BoJ formalized the yield curve control (YCC) cap at 1.0%.

However, if risk sentiment recovers or the Middle East conflict intensifies, we could see a renewed upswing in the Gold price, as the US Dollar will likely lose its recovery momentum. There are no major economic data releases from the United States, except for the US CB Consumer Confidence, which is unlikely to have a significant impact on the US Dollar valuations.

Gold price could stay afloat, as traders would refrain from placing any directional bets heading toward Wednesday’s key Fed decision. Also, traders remain watchful ahead of the key quarterly earnings report from  Apple Inc.

Gold price technical analysis: Daily chart

The short-term technical outlook for Gold price remains constructive, with every dip likely to be seen as a good buying opportunity.

The 14-day Relative Strength Index (RSI) indicator is flirting with the overbought territory, still supporting the case for further upside.  

Adding credence to the bullish potential in Gold price. the 21-day Simple Moving Average (SMA) pierced the 50-day SMA from below on a daily closing basis, confirming a Bull Cross on Monday.

Therefore, the mid-May high near $2,020 remains in Gold buyers’ sight, following a sustained move above the multi-month high of $2,009. However, Gold price needs to crack the $2,000 threshold once again, first.

A rejection again at the $2,000 level could see a retest of the $1,990 round level, below which the October 27 low of $1,977 could be challenged.

The line in the sand for Gold buyers is envisioned at the static support at $1,963.