Gold Price Forecast: XAU/USD refreshes daily lows amid stronger USD, downside seems limited

• Gold fails to maintain the previous day’s upside momentum on Tuesday.
• Higher US Treasury yields underpin the demand for the US dollar
• Inflation concerns support prices near lower levels.

Update: Gold struggled to capitalize on its recent gains to one-and-half-week tops and met with some fresh supply on Tuesday, snapping three consecutive days of the winning streak. The pullback extended through the early European session and dragged the XAU/USD to fresh daily lows, around the $1,755 region in the last hour. The US dollar strengthened across the board, which, in turn, was seen as a key factor that acted as a headwind for dollar-denominated commodities, including gold.

The USD continued drawing support from prospects for an early policy tightening by the Fed and was further underpinned by an uptick in the US Treasury bond yields. Investors seem convinced that the Fed would begin rolling back its massive pandemic-era stimulus as soon as November and raise interest rates in 2022. This was seen as another factor that drove flows away from the non-yielding gold. That said, the prevalent cautious mood might help limit deeper losses for the safe-haven XAU/USD.

Worries that the recent runaway rally in crude oil/energy prices will stoke inflation and derail the global economic recovery tempered investors' appetite for perceived riskier assets. This was evident from a generally weaker sentiment around the equity markets, which tends to benefit traditional safe-haven assets. Hence, it will be prudent to wait for a strong follow-through selling before confirming that the recent bounce from over one-month lows has run out of steam and positioning for any further depreciating move.

Previous update: Gold prices surrendered the initial gains as the US dollar gathered upside momentum on Tuesday. The prices encountered strong resistance near $1,770.

The US Dollar Index, which tracks the performance of the greenback against the basket of six major currencies, recovers from the lower levels and stands strong near 94.00, making the precious metal cheaper for other currencies holders. The greenback came under selling pressure after touching the yearly high above 94.00 in the previous week.

The US New Factory Orders came above the forecasts as they jumped 1.2% in August, much above the market forecasts of a 1% rise. The upside pressure in the prices was built up by the higher US 10-year benchmark Treasury yields, which rose 2 basis points to 1.48% after testing the high of 1.56%, its highest point since June.

Investors remained concerned about inflationary pressures and tighter monetary policy. Now, the main focus for traders turns toward this week ADP’s September employment change data on Wednesday and the Nonfarm payrolls (NFP) report for the previous month, which is due on Friday. 

Gold is generally considered a hedge against inflation and currency volatility. A Hawkish move by the Federal Reserve would diminish gold’s appeal. If the Fed raises interest rates this would increase the opportunity cost of holding the bullion, which pays no interest.

Asian stock market remains cautious on the fate of debt-ridden China’s Everngradne and its ripple effect on the global stock market, supporting the gold prices near the lower levels.

Technical levels

XAU/USD daily chart

Gold prices formed the double top near $1830 at the beginning of the September series and remained under the selling pressure for the complete month while touching the low near $1,721.71 on September 29. The prices bounced back from here on to touch the highs near $1,770 where once again selling pressure dominates the trend. The bearish sloping line from the $1,830 acts as a strong resistance for the bulls. In addition to that, the price slips below the 21-day Simple Moving Average (SMA) at $1,767.

Having said that, as per the technical set up the first downside target for XAU/USD appears at the previous day’s low of $1,747.79.

The Moving Average Convergence Divergence (MACD) holds onto the oversold zone. Any downtick in the MACD indicator would confirm amplify the selling pressure and the prices would approach toward the $1,730 horizontal support level. A daily close below the support level would entice bears to meet the $1,710 horizontal support level.

Alternatively, if the prices sustain above the intraday high, it could retrace back to the $1,785 horizontal resistance level followed by the high made on September 16 at $1,796.20. A daily close above the 20-day SMA would mean the $1,810 horizontal resistance level for XAU/USD.

XAU/USD additional levels