Gold Price Forecast: Pre-FOMC adjustments could trigger a brief rebound in XAU/USD

Gold price is consolidating Thursday’s massive sell-off on the final trading day of the week, keeping close proximity to the weakest level since April 2020 hit at $1,660. The bright metal is down 3% so far this week, on track for the sixth straight monthly decline. The narrative of hefty Fed rate hike expectations in the coming months could continue playing out this Friday, although gold traders could take profit on their short positions under the pretext of excessive selling and position re-adjustments ahead of next week’s FOMC decision. The end-of-the-week flows could also have a significant impact on the dollar valuations, eventually impacting the USD-priced gold. At the moment, markets are fully pricing 75 bps Fed rate hike next week, a possibility of even as high as 100 bps lift-off remains on the table.     

Also read: Chart of the day: Gold

Besides, the pre-Fed profit-taking, the bright metal could also take cues from the Preliminary UoM Consumer Sentiment data, which is seen improving to 60.0 in September vs. 58.2 previous. However, the critical Preliminary UoM Inflation Expectations gauge will hog the limelight after hotter US CPI and PPI reports earlier this week. Hotter than expected US inflation data bolstered expectations of prospects of aggressive US rate hikes but it was Thursday’s unexpected rebound in Retail Sales and upbeat Jobless Claims data that triggered the additional rush into the dollar and the yields while battering the bullion. The benchmark 10-year US Treasury yields hovered near three-month peaks, as the 3.50 level capped the upside once again. Exacerbating the pain in the metal, India slashed the base import prices of gold, palm oil, and crude soya oil. Concerns over Chinese demand, ahead of its activity data, also added to the weight on XAU/USD. China and India are the world’s two largest gold consumers.  

Gold price technical outlook: Daily chart

Gold price yielded a daily close below the rising trendline support, then at $1,693, confirming an inverted cup and handle formation.

The downside bias remains intact amidst the breakdown and the 14-day Relative Strength Index (RSI) still lurking above the oversold territory.

Should the selling pressure gather steam again, then bears could target the $1.650 psychological level following a firm break below the previous day’s low of $1.660.

It’s worth noting that the pattern target is measured at $1,574.

On the flip side, the recovery will need acceptance above the 2022 low of $1,681, above which the aforesaid support-turned-resistance, now at $1,691, will be challenged.

The $1,700 level will be the next upside barrier on the road to recovery.