Gold Price Forecast: Downside potential for XAU/USD seems limited amid COVID-19 woes

• A strong pickup in the USD demand dragged gold back closer to weekly lows on Thursday.
• The USD gained traction after FOMC minutes indicated that tapering could start this year.
• COVID-19 jitters, the risk-off mood might help limit the downside for the safe-haven metal.

Gold continued with its two-way price moves on Wednesday and was influenced by a combination of diverging forces. Worries that the fast-spreading Delta variant of the coronavirus could derail the global economic recovery continued lending some support to the safe-haven commodity. However, resurgent US dollar demand acted as a headwind for the dollar-denominated commodity and capped gains. Following a modest intraday dip, the greenback found some support from a goodish rebound in the US Treasury bond yields.

The USD buying picked up pace following the release of FOMC minutes, which indicated that the US central bank could start reducing the pace of bond-buying later this year. The minutes, however, showed that several Fed officials thought that a move to start tapering asset purchases should start next year. Nevertheless, market participants seemed convinced that the Fed is now comfortable to roll back the crisis-era stimulus, which was evident from some follow-through USD strength through the Asian session on Thursday.

This, in turn, was seen as a key factor that dragged the non-yielding yellow metal back closer to weekly lows. That said, persistent COVID-19 jitters held investors from placing any aggressive bearish bets, warranting some caution before confirming that the XAU/USD has topped out in the near term. Traders now look forward to the US economic docket, featuring the release of the Philly Fed Manufacturing Index and the usual Initial Weekly Jobless Claims. The data might influence the USD and provide some impetus to the commodity.

Short-term technical outlook

Looking at the technical picture, gold, so far, has shown some resilience below 100-hour SMA and has also managed to hold its neck above the 23.6% Fibonacci level of the recent bounce from multi-month tops. This further warrants some caution for bearish traders or positioning for any meaningful decline. From current levels, any subsequent fall below the $1,770 level (23.6% Fibo. level) might attract some buying near the 200-hour SMA, currently around the $1,760 area. This is closely followed by the 38.2% Fibo. level, near the $1,754 region, which should now act as a key pivotal point for short-term traders.

On the flip side, the $1,795 horizontal zone now seems to have emerged as immediate strong resistance. Some follow-through buying beyond the $1,800 mark will be seen as a fresh trigger for bullish traders and set the stage for additional gains. The XAU/USD might then surpass an intermediate hurdle near the $1,812-13 region, or the very important 200-day SMA, and aim to challenge the double-top resistance, around the $1,832-34 zone.