Gold Price Forecast: Upside potential appears limited above $1750, US NFP awaited

Gold price staged an impressive end of the week recovery on Thursday and Friday, reversing the weekly losses, as the bulls snapped three straight weekly declines. Gold ended a volatile week with 0.60% gains, although gave closing above the critical $1750 barrier, courtesy of the quarter-end flows that save the day for gold optimists.

On Friday, gold price held onto Thursday’s stellar rebound, as the risk-off market profile accelerated the correction in the US Treasury yields from multi-month tops, benefiting the yieldless gold. The US political wrangling on the debt ceiling issue and the infrastructure bill vote added to the risk-off mood. Worries over hotter Core PCE inflation offset upbeat ISM and Markit Manufacturing PMI, helping put a floor under gold price. Meanwhile, Fed’s tapering fears continued to lurk amid several appearances from Fed Chair Jerome Powell and his colleagues earlier in the week. Gold traders also digested the Evergrande story, with China stepping out for a week-long holiday.

Starting out a big week on Monday, gold price treads water above $1750, lacking a clear directional bias amid a deterioration in the risk sentiment, which revived the US dollar’s safe-haven demand. China Evergrande news triggered a fresh round of risk-aversion, as the shares of the ill-fated property developer were suspended for trading in Hong Kong after it missed a key interest payment on its offshore debt obligation for the second time last week. Further, the renewed US-China trade concerns, with US Trade Representative Katherine Tai likely to announce later today that China is not complying with the US-China trade phase one trade deal, is collaborating with the dollar’s rebound alongside the Treasury yields.

Looking ahead, gold price will likely maintain its range trade while above $1750, as a scarce US docket and holiday-thinned trading could leave the metal at the mercy of the dollar dynamics and risk trends. China Evergrande updates will be closely followed amid a covid resurgence in Asia-Pacific regions, as markets shrug off positive news on new drugs to fight the coronavirus. Note that the US Factory orders will drop in the NA session.

The focus this week remains on the all-important US Nonfarm payrolls release, which will set the tone for gold markets in the coming weeks.

Gold Price Chart - Technical outlook

Gold: Daily chart

As observed on gold’s daily chart, the price is struggling to extend its recovery momentum while consolidating near fresh weekly highs of $1766.

The further upside is likely to be capped by the bearish 21-Daily Moving Average (DMA) at 1.1770.

If the bulls manage to find acceptance above that short-term critical resistance, then a fresh advance towards 50-DMA at $1784 would be in the offing. The next relevant upside target is aligned at $1800.

The Relative Strength Index (RSI) has turned flat and sits just beneath the midline, suggesting that the bearish bias still persists on gold price.  

Rejection at the 21-DMA hurdle could trigger a sharp move lower towards the $1750 threshold, below which the September 27 highs of $1745 could be put to test.

Floors will then open up towards the rising trendline support of $1725 on the acceleration of the downside.